Correlation Between Controladora Vuela and United Overseas

Can any of the company-specific risk be diversified away by investing in both Controladora Vuela and United Overseas 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 United Overseas 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 United Overseas Bank, you can compare the effects of market volatilities on Controladora Vuela and United Overseas 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 United Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Controladora Vuela and United Overseas.

Diversification Opportunities for Controladora Vuela and United Overseas

0.88

Correlation Coefficient

Controladora Vuela  United Overseas

Very poor diversification

The 3 months correlation between Controladora and United is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Controladora Vuela Compaa and United Overseas Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United Overseas Bank 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 United Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United Overseas Bank has no effect on the direction of Controladora Vuela i.e., Controladora Vuela and United Overseas go up and down completely randomly.

Pair Corralation between Controladora Vuela and United Overseas

Assuming the 90 days trading horizon Controladora Vuela is expected to generate 2.13 times less return on investment than United Overseas. In addition to that, Controladora Vuela is 2.34 times more volatile than United Overseas Bank. It trades about 0.01 of its total potential returns per unit of risk. United Overseas Bank is currently generating about 0.06 per unit of volatility. If you would invest  1,802  in United Overseas Bank on September 23, 2024 and sell it today you would earn a total of  770.00  from holding United Overseas Bank or generate 42.73% return on investment over 90 days.

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

Controladora Vuela Compaa  vs.  United Overseas Bank

Controladora Vuela Compaa

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Controladora Vuela Compaa are ranked lower than 16 (%) 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.

United Overseas Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in United Overseas Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, United Overseas may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Controladora Vuela and United Overseas

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

The idea behind Controladora Vuela Compaa and United Overseas Bank 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.