Correlation Between Citigroup and Larsen Toubro

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

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

Diversification Opportunities for Citigroup and Larsen Toubro

0.47

Correlation Coefficient

Citigroup  Larsen Toubro

Very weak diversification

The 3 months correlation between Citigroup and Larsen is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Citigroup 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 Citigroup 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 Citigroup 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 Citigroup i.e., Citigroup and Larsen Toubro go up and down completely randomly.

Pair Corralation between Citigroup and Larsen Toubro

Taking into account the 90-day investment horizon Citigroup is expected to generate 1.88 times less return on investment than Larsen Toubro. But when comparing it to its historical volatility, Citigroup is 2.03 times less risky than Larsen Toubro. It trades about 0.23 of its potential returns per unit of risk. Larsen Toubro Limited is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  350,590  in Larsen Toubro Limited on September 20, 2024 and sell it today you would earn a total of  25,225  from holding Larsen Toubro Limited or generate 7.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Citigroup  vs.  Larsen Toubro Limited

Citigroup

Risk-Adjusted Performance

10 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Citigroup are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating fundamental indicators, Citigroup exhibited solid returns over the last few months and may actually be approaching a breakup point.

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 Citigroup and Larsen Toubro

The main advantage of trading using opposite Citigroup and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Citigroup 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 Citigroup 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.