Correlation Between Plaza SA and Falabella

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

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

Diversification Opportunities for Plaza SA and Falabella

0.44

Correlation Coefficient

Plaza SA  Falabella

Very weak diversification

The 3 months correlation between Plaza and Falabella is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Plaza SA and Falabella in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Falabella and Plaza SA 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 Plaza SA are associated (or correlated) with Falabella. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Falabella has no effect on the direction of Plaza SA i.e., Plaza SA and Falabella go up and down completely randomly.

Pair Corralation between Plaza SA and Falabella

Assuming the 90 days trading horizon Plaza SA is expected to generate 1.64 times less return on investment than Falabella. But when comparing it to its historical volatility, Plaza SA is 1.15 times less risky than Falabella. It trades about 0.12 of its potential returns per unit of risk. Falabella is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  301,100  in Falabella on September 12, 2024 and sell it today you would earn a total of  46,910  from holding Falabella or generate 15.58% return on investment over 90 days.

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

Plaza SA  vs.  Falabella

Plaza SA

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Plaza SA are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Plaza SA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Falabella

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Falabella are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain technical and fundamental indicators, Falabella disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Plaza SA and Falabella

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

The idea behind Plaza SA and Falabella 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.