Correlation Between LT Foods and Garuda Construction

Can any of the company-specific risk be diversified away by investing in both LT Foods and Garuda Construction at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining LT Foods and Garuda Construction into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LT Foods Limited and Garuda Construction Engineering, you can compare the effects of market volatilities on LT Foods and Garuda Construction and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in LT Foods with a short position of Garuda Construction. Check out your portfolio center. Please also check ongoing floating volatility patterns of LT Foods and Garuda Construction.

Diversification Opportunities for LT Foods and Garuda Construction

0.49

Correlation Coefficient

LT Foods  Garuda Construction

Very weak diversification

The 3 months correlation between LTFOODS and Garuda is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding LT Foods Limited and Garuda Construction Engineerin in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Garuda Construction and LT Foods is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on LT Foods Limited are associated (or correlated) with Garuda Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Garuda Construction has no effect on the direction of LT Foods i.e., LT Foods and Garuda Construction go up and down completely randomly.

Pair Corralation between LT Foods and Garuda Construction

Assuming the 90 days trading horizon LT Foods is expected to generate 1.37 times less return on investment than Garuda Construction. But when comparing it to its historical volatility, LT Foods Limited is 1.69 times less risky than Garuda Construction. It trades about 0.12 of its potential returns per unit of risk. Garuda Construction Engineering is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  10,636  in Garuda Construction Engineering on October 24, 2024 and sell it today you would earn a total of  2,786  from holding Garuda Construction Engineering or generate 26.19% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	22.44%
Values	Daily Returns

LT Foods Limited  vs.  Garuda Construction Engineerin

LT Foods Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in LT Foods Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, LT Foods may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Garuda Construction

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Garuda Construction Engineering are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady basic indicators, Garuda Construction sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with LT Foods and Garuda Construction

The main advantage of trading using opposite LT Foods and Garuda Construction positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LT Foods position performs unexpectedly, Garuda Construction can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Garuda Construction will offset losses from the drop in Garuda Construction's long position.

The idea behind LT Foods Limited and Garuda Construction Engineering pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.