Correlation Between LT Foods and RITES

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

Diversification Opportunities for LT Foods and RITES

0.49

Correlation Coefficient

LT Foods  RITES

Very weak diversification

The 3 months correlation between LTFOODS and RITES is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding LT Foods Limited and RITES Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RITES Limited 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 RITES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RITES Limited has no effect on the direction of LT Foods i.e., LT Foods and RITES go up and down completely randomly.

Pair Corralation between LT Foods and RITES

Assuming the 90 days trading horizon LT Foods Limited is expected to generate 1.23 times more return on investment than RITES. However, LT Foods is 1.23 times more volatile than RITES Limited. It trades about 0.01 of its potential returns per unit of risk. RITES Limited is currently generating about -0.03 per unit of risk. If you would invest  40,574  in LT Foods Limited on October 23, 2024 and sell it today you would lose (709.00) from holding LT Foods Limited or give up 1.75% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

LT Foods Limited  vs.  RITES Limited

LT Foods Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LT Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, LT Foods is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

RITES Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RITES Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, RITES is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with LT Foods and RITES

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

The idea behind LT Foods Limited and RITES Limited 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.