Correlation Between Larsen Toubro and Bharti Airtel

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

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

Diversification Opportunities for Larsen Toubro and Bharti Airtel

0.0

Correlation Coefficient

Larsen Toubro  Bharti Airtel

Pay attention - limited upside

The 3 months correlation between Larsen and Bharti is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Larsen Toubro Limited and Bharti Airtel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bharti Airtel Limited and Larsen Toubro 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 Larsen Toubro Limited are associated (or correlated) with Bharti Airtel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bharti Airtel Limited has no effect on the direction of Larsen Toubro i.e., Larsen Toubro and Bharti Airtel go up and down completely randomly.

Pair Corralation between Larsen Toubro and Bharti Airtel

Assuming the 90 days trading horizon Larsen Toubro Limited is expected to generate 1.16 times more return on investment than Bharti Airtel. However, Larsen Toubro is 1.16 times more volatile than Bharti Airtel Limited. It trades about 0.0 of its potential returns per unit of risk. Bharti Airtel Limited is currently generating about -0.07 per unit of risk. If you would invest  379,390  in Larsen Toubro Limited on September 20, 2024 and sell it today you would lose (3,575) from holding Larsen Toubro Limited or give up 0.94% of portfolio value over 90 days.

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

Larsen Toubro Limited  vs.  Bharti Airtel Limited

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.

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.

Pair Trading with Larsen Toubro and Bharti Airtel

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

The idea behind Larsen Toubro Limited and Bharti Airtel 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..