Correlation Between Aguas Andinas and Enel Generacin

Can any of the company-specific risk be diversified away by investing in both Aguas Andinas and Enel Generacin 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 Aguas Andinas and Enel Generacin into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Aguas Andinas SA and Enel Generacin Chile, you can compare the effects of market volatilities on Aguas Andinas and Enel Generacin 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 Aguas Andinas with a short position of Enel Generacin. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aguas Andinas and Enel Generacin.

Diversification Opportunities for Aguas Andinas and Enel Generacin

0.66

Correlation Coefficient

Aguas Andinas  Enel Generacin

Poor diversification

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

Pair Corralation between Aguas Andinas and Enel Generacin

Assuming the 90 days trading horizon Aguas Andinas is expected to generate 2.52 times less return on investment than Enel Generacin. In addition to that, Aguas Andinas is 1.73 times more volatile than Enel Generacin Chile. It trades about 0.06 of its total potential returns per unit of risk. Enel Generacin Chile is currently generating about 0.27 per unit of volatility. If you would invest  33,000  in Enel Generacin Chile on September 13, 2024 and sell it today you would earn a total of  4,497  from holding Enel Generacin Chile or generate 13.63% return on investment over 90 days.

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

Aguas Andinas SA  vs.  Enel Generacin Chile

Aguas Andinas SA

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Aguas Andinas SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Aguas Andinas is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Enel Generacin Chile

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enel Generacin Chile are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak technical and fundamental indicators, Enel Generacin exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aguas Andinas and Enel Generacin

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

The idea behind Aguas Andinas SA and Enel Generacin Chile 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.