Correlation Between Parq Arauco and Aguas Andinas

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

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

Diversification Opportunities for Parq Arauco and Aguas Andinas

0.93

Correlation Coefficient

Parq Arauco  Aguas Andinas

Almost no diversification

The 3 months correlation between Parq and Aguas is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Parq Arauco and Aguas Andinas SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aguas Andinas SA and Parq Arauco 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 Parq Arauco are associated (or correlated) with Aguas Andinas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aguas Andinas SA has no effect on the direction of Parq Arauco i.e., Parq Arauco and Aguas Andinas go up and down completely randomly.

Pair Corralation between Parq Arauco and Aguas Andinas

Assuming the 90 days trading horizon Parq Arauco is expected to generate 1.0 times less return on investment than Aguas Andinas. In addition to that, Parq Arauco is 1.06 times more volatile than Aguas Andinas SA. It trades about 0.25 of its total potential returns per unit of risk. Aguas Andinas SA is currently generating about 0.27 per unit of volatility. If you would invest  29,321  in Aguas Andinas SA on December 29, 2024 and sell it today you would earn a total of  5,669  from holding Aguas Andinas SA or generate 19.33% return on investment over 90 days.

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

Parq Arauco  vs.  Aguas Andinas SA

Parq Arauco

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Parq Arauco are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Parq Arauco displayed solid returns over the last few months and may actually be approaching a breakup point.

Aguas Andinas SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Aguas Andinas SA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Aguas Andinas sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Parq Arauco and Aguas Andinas

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

The idea behind Parq Arauco and Aguas Andinas 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.