Correlation Between Controladora Vuela and SHOPRITE HDGS

Can any of the company-specific risk be diversified away by investing in both Controladora Vuela and SHOPRITE HDGS 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 Controladora Vuela and SHOPRITE HDGS into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Controladora Vuela Compaa and SHOPRITE HDGS ADR, you can compare the effects of market volatilities on Controladora Vuela and SHOPRITE HDGS 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 Controladora Vuela with a short position of SHOPRITE HDGS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Controladora Vuela and SHOPRITE HDGS.

Diversification Opportunities for Controladora Vuela and SHOPRITE HDGS

0.6

Correlation Coefficient

Controladora Vuela  SHOPRITE HDGS

Poor diversification

The 3 months correlation between Controladora and SHOPRITE is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Controladora Vuela Compaa and SHOPRITE HDGS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SHOPRITE HDGS ADR and Controladora Vuela 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 Controladora Vuela Compaa are associated (or correlated) with SHOPRITE HDGS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SHOPRITE HDGS ADR has no effect on the direction of Controladora Vuela i.e., Controladora Vuela and SHOPRITE HDGS go up and down completely randomly.

Pair Corralation between Controladora Vuela and SHOPRITE HDGS

Assuming the 90 days trading horizon Controladora Vuela Compaa is expected to under-perform the SHOPRITE HDGS. But the stock apears to be less risky and, when comparing its historical volatility, Controladora Vuela Compaa is 1.24 times less risky than SHOPRITE HDGS. The stock trades about -0.24 of its potential returns per unit of risk. The SHOPRITE HDGS ADR is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,520  in SHOPRITE HDGS ADR on October 10, 2024 and sell it today you would lose (10.00) from holding SHOPRITE HDGS ADR or give up 0.66% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	94.44%
Values	Daily Returns

Controladora Vuela Compaa  vs.  SHOPRITE HDGS ADR

Controladora Vuela Compaa

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Controladora Vuela Compaa are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Controladora Vuela reported solid returns over the last few months and may actually be approaching a breakup point.

SHOPRITE HDGS ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SHOPRITE HDGS ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SHOPRITE HDGS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Controladora Vuela and SHOPRITE HDGS

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

The idea behind Controladora Vuela Compaa and SHOPRITE HDGS ADR 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.