Correlation Between Embotelladora Andina and Falabella

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

Diversification Opportunities for Embotelladora Andina and Falabella

-0.35

Correlation Coefficient

Embotelladora Andina  Falabella

Very good diversification

The 3 months correlation between Embotelladora and Falabella is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Embotelladora Andina SA and Falabella in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falabella 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 Falabella. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falabella has no effect on the direction of Embotelladora Andina i.e., Embotelladora Andina and Falabella go up and down completely randomly.

Pair Corralation between Embotelladora Andina and Falabella

Assuming the 90 days trading horizon Embotelladora Andina SA is expected to under-perform the Falabella. But the stock apears to be less risky and, when comparing its historical volatility, Embotelladora Andina SA is 1.66 times less risky than Falabella. The stock trades about -0.09 of its potential returns per unit of risk. The Falabella is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  322,200  in Falabella on September 2, 2024 and sell it today you would earn a total of  7,800  from holding Falabella or generate 2.42% return on investment over 90 days.

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

Embotelladora Andina SA  vs.  Falabella

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 current stock price disturbance, may contribute to short-term losses for the investors.

Falabella

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Falabella are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Falabella is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Embotelladora Andina and Falabella

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

The idea behind Embotelladora Andina SA and Falabella 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.