Correlation Between Pepco Group and Budimex SA

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

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

Diversification Opportunities for Pepco Group and Budimex SA

0.53

Correlation Coefficient

Pepco Group  Budimex SA

Very weak diversification

The 3 months correlation between Pepco and Budimex is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Pepco Group BV and Budimex SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Budimex SA and Pepco Group 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 Pepco Group BV are associated (or correlated) with Budimex SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Budimex SA has no effect on the direction of Pepco Group i.e., Pepco Group and Budimex SA go up and down completely randomly.

Pair Corralation between Pepco Group and Budimex SA

Assuming the 90 days trading horizon Pepco Group is expected to generate 15.97 times less return on investment than Budimex SA. But when comparing it to its historical volatility, Pepco Group BV is 1.02 times less risky than Budimex SA. It trades about 0.01 of its potential returns per unit of risk. Budimex SA is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  47,340  in Budimex SA on December 22, 2024 and sell it today you would earn a total of  13,810  from holding Budimex SA or generate 29.17% return on investment over 90 days.

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

Pepco Group BV  vs.  Budimex SA

Pepco Group BV

Risk-Adjusted Performance

Very Weak

Over the last 90 days Pepco Group BV has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Pepco Group is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Budimex SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Budimex SA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Budimex SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Pepco Group and Budimex SA

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

The idea behind Pepco Group BV and Budimex 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.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.