Correlation Between LT Foods and Heubach Colorants

Can any of the company-specific risk be diversified away by investing in both LT Foods and Heubach Colorants 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 Heubach Colorants 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 Heubach Colorants India, you can compare the effects of market volatilities on LT Foods and Heubach Colorants 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 Heubach Colorants. Check out your portfolio center. Please also check ongoing floating volatility patterns of LT Foods and Heubach Colorants.

Diversification Opportunities for LT Foods and Heubach Colorants

0.05

Correlation Coefficient

LT Foods  Heubach Colorants

Significant diversification

The 3 months correlation between LTFOODS and Heubach is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding LT Foods Limited and Heubach Colorants India in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heubach Colorants India 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 Heubach Colorants. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heubach Colorants India has no effect on the direction of LT Foods i.e., LT Foods and Heubach Colorants go up and down completely randomly.

Pair Corralation between LT Foods and Heubach Colorants

Assuming the 90 days trading horizon LT Foods Limited is expected to generate 0.95 times more return on investment than Heubach Colorants. However, LT Foods Limited is 1.05 times less risky than Heubach Colorants. It trades about 0.13 of its potential returns per unit of risk. Heubach Colorants India is currently generating about 0.05 per unit of risk. If you would invest  16,096  in LT Foods Limited on October 5, 2024 and sell it today you would earn a total of  26,969  from holding LT Foods Limited or generate 167.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	60.04%
Values	Daily Returns

LT Foods Limited  vs.  Heubach Colorants India

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 uncertain basic indicators, LT Foods unveiled solid returns over the last few months and may actually be approaching a breakup point.

Heubach Colorants India

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heubach Colorants India has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's forward indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with LT Foods and Heubach Colorants

The main advantage of trading using opposite LT Foods and Heubach Colorants positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if LT Foods position performs unexpectedly, Heubach Colorants 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 Heubach Colorants will offset losses from the drop in Heubach Colorants' long position.

The idea behind LT Foods Limited and Heubach Colorants India 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.