Correlation Between Norwegian Air and Larsen Toubro

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Can any of the company-specific risk be diversified away by investing in both Norwegian Air and Larsen Toubro 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 Norwegian Air and Larsen Toubro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Norwegian Air Shuttle and Larsen Toubro Limited, you can compare the effects of market volatilities on Norwegian Air and Larsen Toubro 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 Norwegian Air with a short position of Larsen Toubro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norwegian Air and Larsen Toubro.

Diversification Opportunities for Norwegian Air and Larsen Toubro

0.53
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Norwegian and Larsen is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle and Larsen Toubro Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Larsen Toubro Limited and Norwegian Air 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 Norwegian Air Shuttle are associated (or correlated) with Larsen Toubro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Larsen Toubro Limited has no effect on the direction of Norwegian Air i.e., Norwegian Air and Larsen Toubro go up and down completely randomly.

Pair Corralation between Norwegian Air and Larsen Toubro

Assuming the 90 days trading horizon Norwegian Air Shuttle is expected to under-perform the Larsen Toubro. In addition to that, Norwegian Air is 1.75 times more volatile than Larsen Toubro Limited. It trades about -0.14 of its total potential returns per unit of risk. Larsen Toubro Limited is currently generating about -0.2 per unit of volatility. If you would invest  4,310  in Larsen Toubro Limited on October 20, 2024 and sell it today you would lose (210.00) from holding Larsen Toubro Limited or give up 4.87% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.0%
ValuesDaily Returns

Norwegian Air Shuttle  vs.  Larsen Toubro Limited

 Performance 
       Timeline  
Norwegian Air Shuttle 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Norwegian Air Shuttle has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.
Larsen Toubro Limited 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Larsen Toubro Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Larsen Toubro is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Norwegian Air and Larsen Toubro Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Norwegian Air and Larsen Toubro

The main advantage of trading using opposite Norwegian Air and Larsen Toubro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norwegian Air position performs unexpectedly, Larsen Toubro 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 Larsen Toubro will offset losses from the drop in Larsen Toubro's long position.
The idea behind Norwegian Air Shuttle and Larsen Toubro 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.
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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.

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