Correlation Between Gujarat Fluorochemicals and Lakshmi Precision

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

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

Diversification Opportunities for Gujarat Fluorochemicals and Lakshmi Precision

0.75

Correlation Coefficient

Gujarat Fluorochemicals  Lakshmi Precision

Poor diversification

The 3 months correlation between Gujarat and Lakshmi is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Gujarat Fluorochemicals Limite 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 Gujarat Fluorochemicals 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 Gujarat Fluorochemicals 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 Gujarat Fluorochemicals i.e., Gujarat Fluorochemicals and Lakshmi Precision go up and down completely randomly.

Pair Corralation between Gujarat Fluorochemicals and Lakshmi Precision

Assuming the 90 days trading horizon Gujarat Fluorochemicals Limited is expected to generate 0.98 times more return on investment than Lakshmi Precision. However, Gujarat Fluorochemicals Limited is 1.03 times less risky than Lakshmi Precision. It trades about 0.14 of its potential returns per unit of risk. Lakshmi Precision Screws is currently generating about 0.05 per unit of risk. If you would invest  316,577  in Gujarat Fluorochemicals Limited on September 4, 2024 and sell it today you would earn a total of  88,863  from holding Gujarat Fluorochemicals Limited or generate 28.07% return on investment over 90 days.

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

Gujarat Fluorochemicals Limite  vs.  Lakshmi Precision Screws

Gujarat Fluorochemicals

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gujarat Fluorochemicals Limited are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, Gujarat Fluorochemicals exhibited solid returns over the last few months and may actually be approaching a breakup point.

Lakshmi Precision Screws

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lakshmi Precision Screws are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lakshmi Precision may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Gujarat Fluorochemicals and Lakshmi Precision

The main advantage of trading using opposite Gujarat Fluorochemicals and Lakshmi Precision positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gujarat Fluorochemicals 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 Gujarat Fluorochemicals 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.