Correlation Between Banco De and Empresas CMPC

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

By analyzing existing cross correlation between Banco de Chile and Empresas CMPC, you can compare the effects of market volatilities on Banco De and Empresas CMPC 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 Banco De with a short position of Empresas CMPC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco De and Empresas CMPC.

Diversification Opportunities for Banco De and Empresas CMPC

0.06

Correlation Coefficient

Banco De  Empresas CMPC

Significant diversification

The 3 months correlation between Banco and Empresas is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Banco de Chile and Empresas CMPC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empresas CMPC and Banco De 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 Banco de Chile are associated (or correlated) with Empresas CMPC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empresas CMPC has no effect on the direction of Banco De i.e., Banco De and Empresas CMPC go up and down completely randomly.

Pair Corralation between Banco De and Empresas CMPC

Assuming the 90 days trading horizon Banco De is expected to generate 2.02 times less return on investment than Empresas CMPC. But when comparing it to its historical volatility, Banco de Chile is 1.59 times less risky than Empresas CMPC. It trades about 0.09 of its potential returns per unit of risk. Empresas CMPC is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  155,500  in Empresas CMPC on September 13, 2024 and sell it today you would earn a total of  3,500  from holding Empresas CMPC or generate 2.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

Banco de Chile  vs.  Empresas CMPC

Banco de Chile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco de Chile has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Banco De is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Empresas CMPC

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Empresas CMPC are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Empresas CMPC may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Banco De and Empresas CMPC

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

The idea behind Banco de Chile and Empresas CMPC 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..