Correlation Between State Bank and Larsen Toubro

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

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

Diversification Opportunities for State Bank and Larsen Toubro

0.63

Correlation Coefficient

State Bank  Larsen Toubro

Poor diversification

The 3 months correlation between State and Larsen is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding State Bank of 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 State Bank 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 State Bank of 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 State Bank i.e., State Bank and Larsen Toubro go up and down completely randomly.

Pair Corralation between State Bank and Larsen Toubro

Assuming the 90 days trading horizon State Bank of is expected to under-perform the Larsen Toubro. But the stock apears to be less risky and, when comparing its historical volatility, State Bank of is 1.25 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 -0.12 of returns per unit of risk over similar time horizon. If you would invest  375,300  in Larsen Toubro Limited on September 24, 2024 and sell it today you would lose (12,315) from holding Larsen Toubro Limited or give up 3.28% of portfolio value over 90 days.

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

State Bank of  vs.  Larsen Toubro Limited

State Bank

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in State Bank of are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, State Bank is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Larsen Toubro Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Larsen Toubro Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Larsen Toubro is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with State Bank and Larsen Toubro

The main advantage of trading using opposite State Bank and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if State Bank 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 State Bank of 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.