Correlation Between Parag Milk and Lakshmi Precision

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

By analyzing existing cross correlation between Parag Milk Foods and Lakshmi Precision Screws, you can compare the effects of market volatilities on Parag Milk and Lakshmi Precision 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 Parag Milk with a short position of Lakshmi Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of Parag Milk and Lakshmi Precision.

Diversification Opportunities for Parag Milk and Lakshmi Precision

0.58

Correlation Coefficient

Parag Milk  Lakshmi Precision

Very weak diversification

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

Pair Corralation between Parag Milk and Lakshmi Precision

Assuming the 90 days trading horizon Parag Milk Foods is expected to under-perform the Lakshmi Precision. But the stock apears to be less risky and, when comparing its historical volatility, Parag Milk Foods is 1.27 times less risky than Lakshmi Precision. The stock trades about -0.16 of its potential returns per unit of risk. The Lakshmi Precision Screws is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  563.00  in Lakshmi Precision Screws on November 20, 2024 and sell it today you would lose (20.00) from holding Lakshmi Precision Screws or give up 3.55% of portfolio value over 90 days.

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

Parag Milk Foods  vs.  Lakshmi Precision Screws

Parag Milk Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Parag Milk Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain fairly strong which may send shares a bit higher in March 2025. The recent confusion may also be a sign of long-lasting up-swing for the firm traders.

Lakshmi Precision Screws

Risk-Adjusted Performance

Very Weak

Over the last 90 days Lakshmi Precision Screws has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Lakshmi Precision is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Parag Milk and Lakshmi Precision

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

The idea behind Parag Milk Foods and Lakshmi Precision Screws 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.