Correlation Between Ausom Enterprise and Lakshmi Precision

Can any of the company-specific risk be diversified away by investing in both Ausom Enterprise and Lakshmi Precision 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 Ausom Enterprise and Lakshmi Precision into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ausom Enterprise Limited and Lakshmi Precision Screws, you can compare the effects of market volatilities on Ausom Enterprise and Lakshmi Precision 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 Ausom Enterprise with a short position of Lakshmi Precision. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ausom Enterprise and Lakshmi Precision.

Diversification Opportunities for Ausom Enterprise and Lakshmi Precision

0.26

Correlation Coefficient

Ausom Enterprise  Lakshmi Precision

Modest diversification

The 3 months correlation between Ausom and Lakshmi is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Ausom Enterprise Limited and Lakshmi Precision Screws in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lakshmi Precision Screws and Ausom Enterprise 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 Ausom Enterprise Limited are associated (or correlated) with Lakshmi Precision. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lakshmi Precision Screws has no effect on the direction of Ausom Enterprise i.e., Ausom Enterprise and Lakshmi Precision go up and down completely randomly.

Pair Corralation between Ausom Enterprise and Lakshmi Precision

Assuming the 90 days trading horizon Ausom Enterprise Limited is expected to generate 1.67 times more return on investment than Lakshmi Precision. However, Ausom Enterprise is 1.67 times more volatile than Lakshmi Precision Screws. It trades about 0.06 of its potential returns per unit of risk. Lakshmi Precision Screws is currently generating about 0.04 per unit of risk. If you would invest  9,599  in Ausom Enterprise Limited on September 2, 2024 and sell it today you would earn a total of  1,078  from holding Ausom Enterprise Limited or generate 11.23% return on investment over 90 days.

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

Ausom Enterprise Limited  vs.  Lakshmi Precision Screws

Ausom Enterprise

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ausom Enterprise Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain technical and fundamental indicators, Ausom Enterprise displayed solid returns over the last few months and may actually be approaching a breakup point.

Lakshmi Precision Screws

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lakshmi Precision Screws are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Lakshmi Precision may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Ausom Enterprise and Lakshmi Precision

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

The idea behind Ausom Enterprise Limited and Lakshmi Precision Screws 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.