Correlation Between Zenith Steel and Larsen Toubro

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

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

Diversification Opportunities for Zenith Steel and Larsen Toubro

-0.25

Correlation Coefficient

Zenith Steel  Larsen Toubro

Very good diversification

The 3 months correlation between Zenith and Larsen is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Zenith Steel Pipes 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 Zenith Steel 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 Zenith Steel Pipes 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 Zenith Steel i.e., Zenith Steel and Larsen Toubro go up and down completely randomly.

Pair Corralation between Zenith Steel and Larsen Toubro

Assuming the 90 days trading horizon Zenith Steel Pipes is expected to under-perform the Larsen Toubro. In addition to that, Zenith Steel is 1.51 times more volatile than Larsen Toubro Limited. It trades about -0.14 of its total potential returns per unit of risk. Larsen Toubro Limited is currently generating about -0.07 per unit of volatility. If you would invest  378,990  in Larsen Toubro Limited on October 5, 2024 and sell it today you would lose (7,640) from holding Larsen Toubro Limited or give up 2.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Zenith Steel Pipes  vs.  Larsen Toubro Limited

Zenith Steel Pipes

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Zenith Steel Pipes 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 February 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

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Larsen Toubro Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Larsen Toubro may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Zenith Steel and Larsen Toubro

The main advantage of trading using opposite Zenith Steel and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Zenith Steel 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 Zenith Steel Pipes 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..