Correlation Between First State and Gaucho Group

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

By analyzing existing cross correlation between First State Financial and Gaucho Group Holdings, you can compare the effects of market volatilities on First State and Gaucho Group 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 First State with a short position of Gaucho Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of First State and Gaucho Group.

Diversification Opportunities for First State and Gaucho Group

0.73

Correlation Coefficient

First State  Gaucho Group

Poor diversification

The 3 months correlation between First and Gaucho is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding First State Financial and Gaucho Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gaucho Group Holdings and First State 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 First State Financial are associated (or correlated) with Gaucho Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gaucho Group Holdings has no effect on the direction of First State i.e., First State and Gaucho Group go up and down completely randomly.

Pair Corralation between First State and Gaucho Group

Given the investment horizon of 90 days First State Financial is expected to generate 1.11 times more return on investment than Gaucho Group. However, First State is 1.11 times more volatile than Gaucho Group Holdings. It trades about 0.11 of its potential returns per unit of risk. Gaucho Group Holdings is currently generating about -0.02 per unit of risk. If you would invest  1.53  in First State Financial on October 21, 2024 and sell it today you would earn a total of  2.94  from holding First State Financial or generate 192.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	26.3%
Values	Daily Returns

First State Financial  vs.  Gaucho Group Holdings

First State Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First State Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, First State is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Gaucho Group Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gaucho Group Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with First State and Gaucho Group

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

The idea behind First State Financial and Gaucho Group Holdings 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.