Correlation Between Larsen Toubro and Ross Stores

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

Diversification Opportunities for Larsen Toubro and Ross Stores

0.78

Correlation Coefficient

Larsen Toubro  Ross Stores

Poor diversification

The 3 months correlation between Larsen and Ross is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Larsen Toubro Limited and Ross Stores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ross Stores 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 Ross Stores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ross Stores has no effect on the direction of Larsen Toubro i.e., Larsen Toubro and Ross Stores go up and down completely randomly.

Pair Corralation between Larsen Toubro and Ross Stores

Assuming the 90 days horizon Larsen Toubro Limited is expected to generate 2.13 times more return on investment than Ross Stores. However, Larsen Toubro is 2.13 times more volatile than Ross Stores. It trades about -0.06 of its potential returns per unit of risk. Ross Stores is currently generating about -0.24 per unit of risk. If you would invest  4,140  in Larsen Toubro Limited on December 28, 2024 and sell it today you would lose (500.00) from holding Larsen Toubro Limited or give up 12.08% of portfolio value over 90 days.

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

Larsen Toubro Limited  vs.  Ross Stores

Larsen Toubro Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days Larsen Toubro Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Ross Stores

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ross Stores has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Larsen Toubro and Ross Stores

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

The idea behind Larsen Toubro Limited and Ross Stores 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.