Correlation Between Grupo Aval and Canstar Resources

Can any of the company-specific risk be diversified away by investing in both Grupo Aval and Canstar Resources 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 Grupo Aval and Canstar Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Grupo Aval and Canstar Resources, you can compare the effects of market volatilities on Grupo Aval and Canstar Resources 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 Grupo Aval with a short position of Canstar Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Grupo Aval and Canstar Resources.

Diversification Opportunities for Grupo Aval and Canstar Resources

0.81

Correlation Coefficient

Grupo Aval  Canstar Resources

Very poor diversification

The 3 months correlation between Grupo and Canstar is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Grupo Aval and Canstar Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canstar Resources and Grupo Aval 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 Grupo Aval are associated (or correlated) with Canstar Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canstar Resources has no effect on the direction of Grupo Aval i.e., Grupo Aval and Canstar Resources go up and down completely randomly.

Pair Corralation between Grupo Aval and Canstar Resources

Given the investment horizon of 90 days Grupo Aval is expected to generate 1.67 times less return on investment than Canstar Resources. But when comparing it to its historical volatility, Grupo Aval is 4.87 times less risky than Canstar Resources. It trades about 0.2 of its potential returns per unit of risk. Canstar Resources is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3.60  in Canstar Resources on December 3, 2024 and sell it today you would earn a total of  0.42  from holding Canstar Resources or generate 11.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	97.56%
Values	Daily Returns

Grupo Aval  vs.  Canstar Resources

Grupo Aval

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Grupo Aval are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent basic indicators, Grupo Aval disclosed solid returns over the last few months and may actually be approaching a breakup point.

Canstar Resources

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canstar Resources are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Canstar Resources reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Grupo Aval and Canstar Resources

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

The idea behind Grupo Aval and Canstar Resources 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.