Correlation Between AGL Energy and Pampa Energia

Can any of the company-specific risk be diversified away by investing in both AGL Energy and Pampa Energia 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 AGL Energy and Pampa Energia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between AGL Energy and Pampa Energia SA, you can compare the effects of market volatilities on AGL Energy and Pampa Energia 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 AGL Energy with a short position of Pampa Energia. Check out your portfolio center. Please also check ongoing floating volatility patterns of AGL Energy and Pampa Energia.

Diversification Opportunities for AGL Energy and Pampa Energia

-0.66

Correlation Coefficient

AGL Energy  Pampa Energia

Excellent diversification

The 3 months correlation between AGL and Pampa is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding AGL Energy and Pampa Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pampa Energia SA and AGL Energy 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 AGL Energy are associated (or correlated) with Pampa Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pampa Energia SA has no effect on the direction of AGL Energy i.e., AGL Energy and Pampa Energia go up and down completely randomly.

Pair Corralation between AGL Energy and Pampa Energia

Assuming the 90 days horizon AGL Energy is expected to generate 2.27 times less return on investment than Pampa Energia. But when comparing it to its historical volatility, AGL Energy is 1.07 times less risky than Pampa Energia. It trades about 0.04 of its potential returns per unit of risk. Pampa Energia SA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,512  in Pampa Energia SA on September 8, 2024 and sell it today you would earn a total of  5,230  from holding Pampa Energia SA or generate 148.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.58%
Values	Daily Returns

AGL Energy  vs.  Pampa Energia SA

AGL Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AGL Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pampa Energia SA

Risk-Adjusted Performance

27 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Pampa Energia SA are ranked lower than 27 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Pampa Energia displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AGL Energy and Pampa Energia

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

The idea behind AGL Energy and Pampa Energia SA 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.