Correlation Between Embotelladora Andina and Enel Generacin

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

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

Diversification Opportunities for Embotelladora Andina and Enel Generacin

-0.77

Correlation Coefficient

Embotelladora Andina  Enel Generacin

Pay attention - limited upside

The 3 months correlation between Embotelladora and Enel is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Embotelladora Andina 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 Embotelladora Andina 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 Embotelladora Andina 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 Embotelladora Andina i.e., Embotelladora Andina and Enel Generacin go up and down completely randomly.

Pair Corralation between Embotelladora Andina and Enel Generacin

Assuming the 90 days trading horizon Embotelladora Andina SA is expected to under-perform the Enel Generacin. In addition to that, Embotelladora Andina is 1.19 times more volatile than Enel Generacin Chile. It trades about -0.09 of its total potential returns per unit of risk. Enel Generacin Chile is currently generating about 0.3 per unit of volatility. If you would invest  32,665  in Enel Generacin Chile on September 5, 2024 and sell it today you would earn a total of  4,831  from holding Enel Generacin Chile or generate 14.79% return on investment over 90 days.

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

Embotelladora Andina SA  vs.  Enel Generacin Chile

Embotelladora Andina

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Embotelladora Andina SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward indicators, Embotelladora Andina is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Enel Generacin Chile

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Enel Generacin Chile are ranked lower than 23 (%) 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 Embotelladora Andina and Enel Generacin

The main advantage of trading using opposite Embotelladora Andina and Enel Generacin positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Embotelladora Andina 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 Embotelladora Andina 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.