Correlation Between Aguas Andinas and Vapores

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

Diversification Opportunities for Aguas Andinas and Vapores

0.62

Correlation Coefficient

Aguas Andinas  Vapores

Poor diversification

The 3 months correlation between Aguas and Vapores is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Aguas Andinas SA and Vapores in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vapores 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 Vapores. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vapores has no effect on the direction of Aguas Andinas i.e., Aguas Andinas and Vapores go up and down completely randomly.

Pair Corralation between Aguas Andinas and Vapores

Assuming the 90 days trading horizon Aguas Andinas SA is expected to generate 0.9 times more return on investment than Vapores. However, Aguas Andinas SA is 1.11 times less risky than Vapores. It trades about 0.16 of its potential returns per unit of risk. Vapores is currently generating about 0.1 per unit of risk. If you would invest  28,910  in Aguas Andinas SA on December 1, 2024 and sell it today you would earn a total of  2,690  from holding Aguas Andinas SA or generate 9.3% 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.  Vapores

Aguas Andinas SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aguas Andinas SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aguas Andinas may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Vapores

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vapores are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, Vapores may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Aguas Andinas and Vapores

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

The idea behind Aguas Andinas SA and Vapores 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.