Correlation Between LT Foods and Hindustan Construction

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

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

Diversification Opportunities for LT Foods and Hindustan Construction

0.57

Correlation Coefficient

LT Foods  Hindustan Construction

Very weak diversification

The 3 months correlation between LTFOODS and Hindustan is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding LT Foods Limited and Hindustan Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hindustan Construction and LT Foods 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 LT Foods Limited are associated (or correlated) with Hindustan Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hindustan Construction has no effect on the direction of LT Foods i.e., LT Foods and Hindustan Construction go up and down completely randomly.

Pair Corralation between LT Foods and Hindustan Construction

Assuming the 90 days trading horizon LT Foods Limited is expected to generate 0.96 times more return on investment than Hindustan Construction. However, LT Foods Limited is 1.04 times less risky than Hindustan Construction. It trades about 0.03 of its potential returns per unit of risk. Hindustan Construction is currently generating about -0.03 per unit of risk. If you would invest  38,348  in LT Foods Limited on August 31, 2024 and sell it today you would earn a total of  782.00  from holding LT Foods Limited or generate 2.04% return on investment over 90 days.

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

LT Foods Limited  vs.  Hindustan Construction

LT Foods Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in LT Foods Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, LT Foods is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Hindustan Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hindustan Construction has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Hindustan Construction is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with LT Foods and Hindustan Construction

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

The idea behind LT Foods Limited and Hindustan Construction 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.