Correlation Between Zee Entertainment and LT Foods

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

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

Diversification Opportunities for Zee Entertainment and LT Foods

0.73

Correlation Coefficient

Zee Entertainment  LT Foods

Poor diversification

The 3 months correlation between Zee and LTFOODS is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Zee Entertainment Enterprises 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 Zee Entertainment 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 Zee Entertainment Enterprises 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 Zee Entertainment i.e., Zee Entertainment and LT Foods go up and down completely randomly.

Pair Corralation between Zee Entertainment and LT Foods

Assuming the 90 days trading horizon Zee Entertainment is expected to generate 2.93 times less return on investment than LT Foods. In addition to that, Zee Entertainment is 1.11 times more volatile than LT Foods Limited. It trades about 0.15 of its total potential returns per unit of risk. LT Foods Limited is currently generating about 0.5 per unit of volatility. If you would invest  34,055  in LT Foods Limited on September 20, 2024 and sell it today you would earn a total of  8,450  from holding LT Foods Limited or generate 24.81% return on investment over 90 days.

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

Zee Entertainment Enterprises  vs.  LT Foods Limited

Zee Entertainment

Risk-Adjusted Performance

2 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Zee Entertainment Enterprises are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Zee Entertainment is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

LT Foods Limited

Risk-Adjusted Performance

0 of 100

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 comparatively stable basic indicators, LT Foods is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Zee Entertainment and LT Foods

The main advantage of trading using opposite Zee Entertainment and LT Foods positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zee Entertainment 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 Zee Entertainment Enterprises 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.