Correlation Between AFP Provida and AFP Habitat

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

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

Diversification Opportunities for AFP Provida and AFP Habitat

0.45

Correlation Coefficient

AFP Provida  AFP Habitat

Very weak diversification

The 3 months correlation between AFP and AFP is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding AFP Provida and AFP Habitat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AFP Habitat and AFP Provida 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 AFP Provida are associated (or correlated) with AFP Habitat. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AFP Habitat has no effect on the direction of AFP Provida i.e., AFP Provida and AFP Habitat go up and down completely randomly.

Pair Corralation between AFP Provida and AFP Habitat

Assuming the 90 days trading horizon AFP Provida is expected to under-perform the AFP Habitat. In addition to that, AFP Provida is 1.11 times more volatile than AFP Habitat. It trades about -0.02 of its total potential returns per unit of risk. AFP Habitat is currently generating about 0.07 per unit of volatility. If you would invest  84,199  in AFP Habitat on September 5, 2024 and sell it today you would earn a total of  767.00  from holding AFP Habitat or generate 0.91% return on investment over 90 days.

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

AFP Provida  vs.  AFP Habitat

AFP Provida

Risk-Adjusted Performance

0 of 100

Very Weak

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

AFP Habitat

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AFP Habitat has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, AFP Habitat is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with AFP Provida and AFP Habitat

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

The idea behind AFP Provida and AFP Habitat 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.