Correlation Between Delta Manufacturing and Lakshmi Precision

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

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

Diversification Opportunities for Delta Manufacturing and Lakshmi Precision

0.15

Correlation Coefficient

Delta Manufacturing  Lakshmi Precision

Average diversification

The 3 months correlation between Delta and Lakshmi is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Delta Manufacturing 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 Delta Manufacturing 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 Delta Manufacturing 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 Delta Manufacturing i.e., Delta Manufacturing and Lakshmi Precision go up and down completely randomly.

Pair Corralation between Delta Manufacturing and Lakshmi Precision

Assuming the 90 days trading horizon Delta Manufacturing Limited is expected to generate 1.21 times more return on investment than Lakshmi Precision. However, Delta Manufacturing is 1.21 times more volatile than Lakshmi Precision Screws. It trades about 0.09 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  8,968  in Delta Manufacturing Limited on September 2, 2024 and sell it today you would earn a total of  1,559  from holding Delta Manufacturing Limited or generate 17.38% return on investment over 90 days.

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

Delta Manufacturing Limited  vs.  Lakshmi Precision Screws

Delta Manufacturing

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Delta Manufacturing Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Delta Manufacturing sustained 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 Delta Manufacturing and Lakshmi Precision

The main advantage of trading using opposite Delta Manufacturing and Lakshmi Precision positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Delta Manufacturing 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 Delta Manufacturing 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.