Correlation Between Faes Farma and ENCE Energa

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

By analyzing existing cross correlation between Faes Farma SA and ENCE Energa y, you can compare the effects of market volatilities on Faes Farma and ENCE Energa 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 Faes Farma with a short position of ENCE Energa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Faes Farma and ENCE Energa.

Diversification Opportunities for Faes Farma and ENCE Energa

0.55

Correlation Coefficient

Faes Farma  ENCE Energa

Very weak diversification

The 3 months correlation between Faes and ENCE is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Faes Farma SA and ENCE Energa y in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENCE Energa y and Faes Farma 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 Faes Farma SA are associated (or correlated) with ENCE Energa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENCE Energa y has no effect on the direction of Faes Farma i.e., Faes Farma and ENCE Energa go up and down completely randomly.

Pair Corralation between Faes Farma and ENCE Energa

Assuming the 90 days trading horizon Faes Farma SA is expected to under-perform the ENCE Energa. But the stock apears to be less risky and, when comparing its historical volatility, Faes Farma SA is 1.66 times less risky than ENCE Energa. The stock trades about -0.14 of its potential returns per unit of risk. The ENCE Energa y is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  293.00  in ENCE Energa y on September 13, 2024 and sell it today you would lose (7.00) from holding ENCE Energa y or give up 2.39% of portfolio value over 90 days.

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

Faes Farma SA  vs.  ENCE Energa y

Faes Farma SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Faes Farma SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

ENCE Energa y

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ENCE Energa y has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, ENCE Energa is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Faes Farma and ENCE Energa

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

The idea behind Faes Farma SA and ENCE Energa y 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.

Check out your portfolio center.

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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.