Correlation Between Parq Arauco and Plaza SA

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

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

Diversification Opportunities for Parq Arauco and Plaza SA

0.94

Correlation Coefficient

Parq Arauco  Plaza SA

Almost no diversification

The 3 months correlation between Parq and Plaza is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Parq Arauco and Plaza SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Plaza 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 Plaza SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Plaza SA has no effect on the direction of Parq Arauco i.e., Parq Arauco and Plaza SA go up and down completely randomly.

Pair Corralation between Parq Arauco and Plaza SA

Assuming the 90 days trading horizon Parq Arauco is expected to generate 1.09 times less return on investment than Plaza SA. But when comparing it to its historical volatility, Parq Arauco is 1.24 times less risky than Plaza SA. It trades about 0.25 of its potential returns per unit of risk. Plaza SA is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  163,010  in Plaza SA on December 30, 2024 and sell it today you would earn a total of  33,990  from holding Plaza SA or generate 20.85% 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.  Plaza 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.

Plaza SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Plaza SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Plaza SA sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Parq Arauco and Plaza SA

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

The idea behind Parq Arauco and Plaza 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.