Correlation Between Larsen Toubro and EMCOR

Can any of the company-specific risk be diversified away by investing in both Larsen Toubro and EMCOR 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 Larsen Toubro and EMCOR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Larsen Toubro Limited and EMCOR Group, you can compare the effects of market volatilities on Larsen Toubro and EMCOR 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 Larsen Toubro with a short position of EMCOR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Larsen Toubro and EMCOR.

Diversification Opportunities for Larsen Toubro and EMCOR

0.58

Correlation Coefficient

Larsen Toubro  EMCOR

Very weak diversification

The 3 months correlation between Larsen and EMCOR is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Larsen Toubro Limited and EMCOR Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCOR Group and Larsen Toubro 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 Larsen Toubro Limited are associated (or correlated) with EMCOR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCOR Group has no effect on the direction of Larsen Toubro i.e., Larsen Toubro and EMCOR go up and down completely randomly.

Pair Corralation between Larsen Toubro and EMCOR

Assuming the 90 days horizon Larsen Toubro is expected to generate 5.02 times less return on investment than EMCOR. In addition to that, Larsen Toubro is 1.08 times more volatile than EMCOR Group. It trades about 0.02 of its total potential returns per unit of risk. EMCOR Group is currently generating about 0.08 per unit of volatility. If you would invest  35,203  in EMCOR Group on October 13, 2024 and sell it today you would earn a total of  10,607  from holding EMCOR Group or generate 30.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Larsen Toubro Limited  vs.  EMCOR Group

Larsen Toubro Limited

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Larsen Toubro Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Larsen Toubro may actually be approaching a critical reversion point that can send shares even higher in February 2025.

EMCOR Group

Risk-Adjusted Performance

6 of 100

Modest

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

Pair Trading with Larsen Toubro and EMCOR

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

The idea behind Larsen Toubro Limited and EMCOR Group 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.