Correlation Between Larsen Toubro and Choice International

Can any of the company-specific risk be diversified away by investing in both Larsen Toubro and Choice International 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 Choice International 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 Choice International Limited, you can compare the effects of market volatilities on Larsen Toubro and Choice International 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 Choice International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Larsen Toubro and Choice International.

Diversification Opportunities for Larsen Toubro and Choice International

0.76

Correlation Coefficient

Larsen Toubro  Choice International

Poor diversification

The 3 months correlation between Larsen and Choice is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Larsen Toubro Limited and Choice International Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Choice International 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 Choice International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Choice International has no effect on the direction of Larsen Toubro i.e., Larsen Toubro and Choice International go up and down completely randomly.

Pair Corralation between Larsen Toubro and Choice International

Assuming the 90 days trading horizon Larsen Toubro Limited is expected to under-perform the Choice International. But the stock apears to be less risky and, when comparing its historical volatility, Larsen Toubro Limited is 1.15 times less risky than Choice International. The stock trades about 0.0 of its potential returns per unit of risk. The Choice International Limited is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  47,855  in Choice International Limited on October 1, 2024 and sell it today you would earn a total of  7,190  from holding Choice International Limited or generate 15.02% return on investment over 90 days.

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

Larsen Toubro Limited  vs.  Choice International 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 current stock price tumult, may contribute to shorter-term losses for the shareholders.

Choice International

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Choice International Limited are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical and fundamental indicators, Choice International demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Larsen Toubro and Choice International

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

The idea behind Larsen Toubro Limited and Choice International 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.