Correlation Between Barratt Developments and Consorcio ARA

Can any of the company-specific risk be diversified away by investing in both Barratt Developments and Consorcio ARA 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 Barratt Developments and Consorcio ARA into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Barratt Developments PLC and Consorcio ARA S, you can compare the effects of market volatilities on Barratt Developments and Consorcio ARA 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 Barratt Developments with a short position of Consorcio ARA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Barratt Developments and Consorcio ARA.

Diversification Opportunities for Barratt Developments and Consorcio ARA

0.19

Correlation Coefficient

Barratt Developments  Consorcio ARA

Average diversification

The 3 months correlation between Barratt and Consorcio is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Barratt Developments PLC and Consorcio ARA S in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consorcio ARA S and Barratt Developments 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 Barratt Developments PLC are associated (or correlated) with Consorcio ARA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consorcio ARA S has no effect on the direction of Barratt Developments i.e., Barratt Developments and Consorcio ARA go up and down completely randomly.

Pair Corralation between Barratt Developments and Consorcio ARA

Assuming the 90 days horizon Barratt Developments is expected to generate 193.71 times less return on investment than Consorcio ARA. But when comparing it to its historical volatility, Barratt Developments PLC is 2.26 times less risky than Consorcio ARA. It trades about 0.0 of its potential returns per unit of risk. Consorcio ARA S is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  11.00  in Consorcio ARA S on December 1, 2024 and sell it today you would earn a total of  6.00  from holding Consorcio ARA S or generate 54.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	93.75%
Values	Daily Returns

Barratt Developments PLC  vs.  Consorcio ARA S

Barratt Developments PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Barratt Developments PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Barratt Developments is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Consorcio ARA S

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consorcio ARA S are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent technical and fundamental indicators, Consorcio ARA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Barratt Developments and Consorcio ARA

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

The idea behind Barratt Developments PLC and Consorcio ARA S 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.