Correlation Between Luz Del and Casa Grande

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

By analyzing existing cross correlation between Luz del Sur and Casa Grande SAA, you can compare the effects of market volatilities on Luz Del and Casa Grande 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 Luz Del with a short position of Casa Grande. Check out your portfolio center. Please also check ongoing floating volatility patterns of Luz Del and Casa Grande.

Diversification Opportunities for Luz Del and Casa Grande

0.28

Correlation Coefficient

Luz Del  Casa Grande

Modest diversification

The 3 months correlation between Luz and Casa is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Luz del Sur and Casa Grande SAA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Casa Grande SAA and Luz Del 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 Luz del Sur are associated (or correlated) with Casa Grande. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Casa Grande SAA has no effect on the direction of Luz Del i.e., Luz Del and Casa Grande go up and down completely randomly.

Pair Corralation between Luz Del and Casa Grande

Assuming the 90 days trading horizon Luz del Sur is expected to under-perform the Casa Grande. But the stock apears to be less risky and, when comparing its historical volatility, Luz del Sur is 1.38 times less risky than Casa Grande. The stock trades about -0.31 of its potential returns per unit of risk. The Casa Grande SAA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,160  in Casa Grande SAA on October 11, 2024 and sell it today you would earn a total of  40.00  from holding Casa Grande SAA or generate 3.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	80.95%
Values	Daily Returns

Luz del Sur  vs.  Casa Grande SAA

Luz del Sur

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Luz del Sur has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Luz Del is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Casa Grande SAA

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Casa Grande SAA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Casa Grande may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Luz Del and Casa Grande

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

The idea behind Luz del Sur and Casa Grande SAA 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.