Correlation Between Empresa Nacional and Aguas Andinas

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

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

Diversification Opportunities for Empresa Nacional and Aguas Andinas

0.82

Correlation Coefficient

Empresa Nacional  Aguas Andinas

Very poor diversification

The 3 months correlation between Empresa and Aguas is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Empresa Nacional de and Aguas Andinas SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aguas Andinas SA and Empresa Nacional 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 Nacional de are associated (or correlated) with Aguas Andinas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aguas Andinas SA has no effect on the direction of Empresa Nacional i.e., Empresa Nacional and Aguas Andinas go up and down completely randomly.

Pair Corralation between Empresa Nacional and Aguas Andinas

Assuming the 90 days trading horizon Empresa Nacional is expected to generate 2.02 times less return on investment than Aguas Andinas. In addition to that, Empresa Nacional is 1.06 times more volatile than Aguas Andinas SA. It trades about 0.07 of its total potential returns per unit of risk. Aguas Andinas SA is currently generating about 0.16 per unit of volatility. If you would invest  28,910  in Aguas Andinas SA on December 2, 2024 and sell it today you would earn a total of  2,690  from holding Aguas Andinas SA or generate 9.3% return on investment over 90 days.

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

Empresa Nacional de  vs.  Aguas Andinas SA

Empresa Nacional

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Empresa Nacional de are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Empresa Nacional is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Aguas Andinas SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Aguas Andinas SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Aguas Andinas may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Empresa Nacional and Aguas Andinas

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

The idea behind Empresa Nacional de and Aguas Andinas SA 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.