Correlation Between BANK MANDIRI and Larsen Toubro

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

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

Diversification Opportunities for BANK MANDIRI and Larsen Toubro

0.8

Correlation Coefficient

BANK MANDIRI  Larsen Toubro

Very poor diversification

The 3 months correlation between BANK and Larsen is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding BANK MANDIRI and Larsen Toubro Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Larsen Toubro Limited and BANK MANDIRI 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 BANK MANDIRI are associated (or correlated) with Larsen Toubro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Larsen Toubro Limited has no effect on the direction of BANK MANDIRI i.e., BANK MANDIRI and Larsen Toubro go up and down completely randomly.

Pair Corralation between BANK MANDIRI and Larsen Toubro

Assuming the 90 days trading horizon BANK MANDIRI is expected to under-perform the Larsen Toubro. But the stock apears to be less risky and, when comparing its historical volatility, BANK MANDIRI is 1.52 times less risky than Larsen Toubro. The stock trades about -0.18 of its potential returns per unit of risk. The Larsen Toubro Limited is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  4,140  in Larsen Toubro Limited on December 29, 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	Strong
Accuracy	100.0%
Values	Daily Returns

BANK MANDIRI  vs.  Larsen Toubro Limited

BANK MANDIRI

Risk-Adjusted Performance

Very Weak

Over the last 90 days BANK MANDIRI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain 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.

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.

Pair Trading with BANK MANDIRI and Larsen Toubro

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

The idea behind BANK MANDIRI and Larsen Toubro 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.