Correlation Between Varun Beverages and LT Foods

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

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

Diversification Opportunities for Varun Beverages and LT Foods

0.68

Correlation Coefficient

Varun Beverages  LT Foods

Poor diversification

The 3 months correlation between Varun and LTFOODS is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Varun Beverages Limited and LT Foods Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LT Foods Limited and Varun Beverages 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 Varun Beverages Limited are associated (or correlated) with LT Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LT Foods Limited has no effect on the direction of Varun Beverages i.e., Varun Beverages and LT Foods go up and down completely randomly.

Pair Corralation between Varun Beverages and LT Foods

Assuming the 90 days trading horizon Varun Beverages Limited is expected to under-perform the LT Foods. But the stock apears to be less risky and, when comparing its historical volatility, Varun Beverages Limited is 1.2 times less risky than LT Foods. The stock trades about -0.17 of its potential returns per unit of risk. The LT Foods Limited is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  39,657  in LT Foods Limited on November 29, 2024 and sell it today you would lose (3,937) from holding LT Foods Limited or give up 9.93% of portfolio value over 90 days.

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

Varun Beverages Limited  vs.  LT Foods Limited

Varun Beverages

Risk-Adjusted Performance

Very Weak

Over the last 90 days Varun Beverages Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in March 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

LT Foods Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days LT Foods Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Varun Beverages and LT Foods

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

The idea behind Varun Beverages Limited and LT Foods 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.