Correlation Between Empresa Distribuidora and Compania

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

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

Diversification Opportunities for Empresa Distribuidora and Compania

0.91

Correlation Coefficient

Empresa Distribuidora  Compania

Almost no diversification

The 3 months correlation between Empresa and Compania is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Empresa Distribuidora y and Compania de Transporte in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compania de Transporte and Empresa Distribuidora 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 Empresa Distribuidora y are associated (or correlated) with Compania. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compania de Transporte has no effect on the direction of Empresa Distribuidora i.e., Empresa Distribuidora and Compania go up and down completely randomly.

Pair Corralation between Empresa Distribuidora and Compania

Assuming the 90 days trading horizon Empresa Distribuidora y is expected to under-perform the Compania. But the stock apears to be less risky and, when comparing its historical volatility, Empresa Distribuidora y is 1.22 times less risky than Compania. The stock trades about -0.06 of its potential returns per unit of risk. The Compania de Transporte is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  239,000  in Compania de Transporte on October 12, 2024 and sell it today you would earn a total of  53,000  from holding Compania de Transporte or generate 22.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Empresa Distribuidora y  vs.  Compania de Transporte

Empresa Distribuidora

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Empresa Distribuidora y are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Empresa Distribuidora sustained solid returns over the last few months and may actually be approaching a breakup point.

Compania de Transporte

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compania de Transporte are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Compania sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Empresa Distribuidora and Compania

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

The idea behind Empresa Distribuidora y and Compania de Transporte 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.