Correlation Between Falabella and Sonda SA

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

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

Diversification Opportunities for Falabella and Sonda SA

0.72

Correlation Coefficient

Falabella  Sonda SA

Poor diversification

The 3 months correlation between Falabella and Sonda is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Falabella and Sonda SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sonda 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 Sonda SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sonda SA has no effect on the direction of Falabella i.e., Falabella and Sonda SA go up and down completely randomly.

Pair Corralation between Falabella and Sonda SA

Assuming the 90 days trading horizon Falabella is expected to generate 1.84 times less return on investment than Sonda SA. In addition to that, Falabella is 1.05 times more volatile than Sonda SA. It trades about 0.14 of its total potential returns per unit of risk. Sonda SA is currently generating about 0.27 per unit of volatility. If you would invest  33,113  in Sonda SA on December 5, 2024 and sell it today you would earn a total of  6,891  from holding Sonda SA or generate 20.81% return on investment over 90 days.

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

Falabella  vs.  Sonda SA

Falabella

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Falabella are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, Falabella may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Sonda SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Sonda SA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Sonda SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Falabella and Sonda SA

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

The idea behind Falabella and Sonda 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.