Correlation Between Compania and Luz Del

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

By analyzing existing cross correlation between Compania de Minas and Luz del Sur, you can compare the effects of market volatilities on Compania and Luz Del 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 Compania with a short position of Luz Del. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania and Luz Del.

Diversification Opportunities for Compania and Luz Del

0.61

Correlation Coefficient

Compania  Luz Del

Poor diversification

The 3 months correlation between Compania and Luz is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Minas and Luz del Sur in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Luz del Sur and Compania 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 Compania de Minas are associated (or correlated) with Luz Del. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Luz del Sur has no effect on the direction of Compania i.e., Compania and Luz Del go up and down completely randomly.

Pair Corralation between Compania and Luz Del

Assuming the 90 days trading horizon Compania de Minas is expected to under-perform the Luz Del. In addition to that, Compania is 3.2 times more volatile than Luz del Sur. It trades about -0.11 of its total potential returns per unit of risk. Luz del Sur is currently generating about -0.02 per unit of volatility. If you would invest  1,570  in Luz del Sur on October 11, 2024 and sell it today you would lose (20.00) from holding Luz del Sur or give up 1.27% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	83.33%
Values	Daily Returns

Compania de Minas  vs.  Luz del Sur

Compania de Minas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compania de Minas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's primary indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Luz del Sur

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Luz del Sur has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Luz Del is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Compania and Luz Del

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

The idea behind Compania de Minas and Luz del Sur 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.