Correlation Between Bharti Airtel and Larsen Toubro

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

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

Diversification Opportunities for Bharti Airtel and Larsen Toubro

0.0

Correlation Coefficient

Bharti Airtel  Larsen Toubro

Pay attention - limited upside

The 3 months correlation between Bharti and Larsen is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Bharti Airtel Limited 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 Bharti Airtel 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 Bharti Airtel Limited 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 Bharti Airtel i.e., Bharti Airtel and Larsen Toubro go up and down completely randomly.

Pair Corralation between Bharti Airtel and Larsen Toubro

Assuming the 90 days trading horizon Bharti Airtel Limited is expected to under-perform the Larsen Toubro. But the stock apears to be less risky and, when comparing its historical volatility, Bharti Airtel Limited is 1.18 times less risky than Larsen Toubro. The stock trades about -0.08 of its potential returns per unit of risk. The Larsen Toubro Limited is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  358,560  in Larsen Toubro Limited on September 20, 2024 and sell it today you would earn a total of  17,255  from holding Larsen Toubro Limited or generate 4.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Bharti Airtel Limited  vs.  Larsen Toubro Limited

Bharti Airtel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bharti Airtel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Bharti Airtel is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the 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 Bharti Airtel and Larsen Toubro

The main advantage of trading using opposite Bharti Airtel and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bharti Airtel 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 Bharti Airtel Limited 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.