Correlation Between LT Technology and CEAT

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

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

Diversification Opportunities for LT Technology and CEAT

-0.11

Correlation Coefficient

LT Technology  CEAT

Good diversification

The 3 months correlation between LTTS and CEAT is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding LT Technology Services and CEAT Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEAT Limited and LT Technology 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 Technology Services are associated (or correlated) with CEAT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEAT Limited has no effect on the direction of LT Technology i.e., LT Technology and CEAT go up and down completely randomly.

Pair Corralation between LT Technology and CEAT

Assuming the 90 days trading horizon LT Technology is expected to generate 334.34 times less return on investment than CEAT. But when comparing it to its historical volatility, LT Technology Services is 97.96 times less risky than CEAT. It trades about 0.04 of its potential returns per unit of risk. CEAT Limited is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  148,075  in CEAT Limited on October 8, 2024 and sell it today you would earn a total of  170,450  from holding CEAT Limited or generate 115.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.11%
Values	Daily Returns

LT Technology Services  vs.  CEAT Limited

LT Technology Services

Risk-Adjusted Performance

0 of 100

Very Weak

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

CEAT Limited

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CEAT Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating essential indicators, CEAT may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with LT Technology and CEAT

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

The idea behind LT Technology Services and CEAT 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.