Correlation Between Laboratorios Farmaceuticos and Acerinox

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

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

Diversification Opportunities for Laboratorios Farmaceuticos and Acerinox

-0.63

Correlation Coefficient

Laboratorios Farmaceuticos  Acerinox

Excellent diversification

The 3 months correlation between Laboratorios and Acerinox is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Laboratorios Farmaceuticos ROV and Acerinox in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Acerinox and Laboratorios Farmaceuticos 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 Laboratorios Farmaceuticos ROVI are associated (or correlated) with Acerinox. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Acerinox has no effect on the direction of Laboratorios Farmaceuticos i.e., Laboratorios Farmaceuticos and Acerinox go up and down completely randomly.

Pair Corralation between Laboratorios Farmaceuticos and Acerinox

Assuming the 90 days trading horizon Laboratorios Farmaceuticos ROVI is expected to generate 0.88 times more return on investment than Acerinox. However, Laboratorios Farmaceuticos ROVI is 1.14 times less risky than Acerinox. It trades about -0.04 of its potential returns per unit of risk. Acerinox is currently generating about -0.12 per unit of risk. If you would invest  6,340  in Laboratorios Farmaceuticos ROVI on October 11, 2024 and sell it today you would lose (80.00) from holding Laboratorios Farmaceuticos ROVI or give up 1.26% of portfolio value over 90 days.

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

Laboratorios Farmaceuticos ROV  vs.  Acerinox

Laboratorios Farmaceuticos

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Laboratorios Farmaceuticos ROVI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Acerinox

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Acerinox are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Acerinox may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Laboratorios Farmaceuticos and Acerinox

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

The idea behind Laboratorios Farmaceuticos ROVI and Acerinox 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.