Correlation Between Falabella and CAP SA

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

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

Diversification Opportunities for Falabella and CAP SA

0.71

Correlation Coefficient

Falabella  CAP SA

Poor diversification

The 3 months correlation between Falabella and CAP is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Falabella and CAP SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CAP SA and Falabella 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 Falabella are associated (or correlated) with CAP SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CAP SA has no effect on the direction of Falabella i.e., Falabella and CAP SA go up and down completely randomly.

Pair Corralation between Falabella and CAP SA

Assuming the 90 days trading horizon Falabella is expected to generate 0.77 times more return on investment than CAP SA. However, Falabella is 1.31 times less risky than CAP SA. It trades about 0.04 of its potential returns per unit of risk. CAP SA is currently generating about 0.01 per unit of risk. If you would invest  319,900  in Falabella on September 3, 2024 and sell it today you would earn a total of  10,100  from holding Falabella or generate 3.16% return on investment over 90 days.

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

Falabella  vs.  CAP SA

Falabella

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Falabella are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Falabella is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

CAP SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CAP SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, CAP SA is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Falabella and CAP SA

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

The idea behind Falabella and CAP 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.