Correlation Between Larsen Toubro and Tokyu Construction

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

Diversification Opportunities for Larsen Toubro and Tokyu Construction

0.47

Correlation Coefficient

Larsen Toubro  Tokyu Construction

Very weak diversification

The 3 months correlation between Larsen and Tokyu is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Larsen Toubro Limited and Tokyu Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyu Construction 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 Tokyu Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyu Construction has no effect on the direction of Larsen Toubro i.e., Larsen Toubro and Tokyu Construction go up and down completely randomly.

Pair Corralation between Larsen Toubro and Tokyu Construction

Assuming the 90 days horizon Larsen Toubro Limited is expected to generate 2.05 times more return on investment than Tokyu Construction. However, Larsen Toubro is 2.05 times more volatile than Tokyu Construction Co. It trades about 0.03 of its potential returns per unit of risk. Tokyu Construction Co is currently generating about -0.03 per unit of risk. If you would invest  3,669  in Larsen Toubro Limited on October 3, 2024 and sell it today you would earn a total of  471.00  from holding Larsen Toubro Limited or generate 12.84% 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.  Tokyu Construction Co

Larsen Toubro Limited

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Larsen Toubro Limited are ranked lower than 3 (%) 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.

Tokyu Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tokyu Construction Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Tokyu Construction is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Larsen Toubro and Tokyu Construction

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

The idea behind Larsen Toubro Limited and Tokyu Construction Co 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.

Check out your portfolio center.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .