Correlation Between Laboratorios Farmaceuticos and CIE Automotive

Can any of the company-specific risk be diversified away by investing in both Laboratorios Farmaceuticos and CIE Automotive 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 CIE Automotive 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 CIE Automotive SA, you can compare the effects of market volatilities on Laboratorios Farmaceuticos and CIE Automotive 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 CIE Automotive. Check out your portfolio center. Please also check ongoing floating volatility patterns of Laboratorios Farmaceuticos and CIE Automotive.

Diversification Opportunities for Laboratorios Farmaceuticos and CIE Automotive

0.81

Correlation Coefficient

Laboratorios Farmaceuticos  CIE Automotive

Very poor diversification

The 3 months correlation between Laboratorios and CIE is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Laboratorios Farmaceuticos ROV and CIE Automotive SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CIE Automotive SA 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 CIE Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CIE Automotive SA has no effect on the direction of Laboratorios Farmaceuticos i.e., Laboratorios Farmaceuticos and CIE Automotive go up and down completely randomly.

Pair Corralation between Laboratorios Farmaceuticos and CIE Automotive

Assuming the 90 days trading horizon Laboratorios Farmaceuticos ROVI is expected to under-perform the CIE Automotive. In addition to that, Laboratorios Farmaceuticos is 1.86 times more volatile than CIE Automotive SA. It trades about -0.08 of its total potential returns per unit of risk. CIE Automotive SA is currently generating about -0.04 per unit of volatility. If you would invest  2,459  in CIE Automotive SA on December 22, 2024 and sell it today you would lose (89.00) from holding CIE Automotive SA or give up 3.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Laboratorios Farmaceuticos ROV  vs.  CIE Automotive SA

Laboratorios Farmaceuticos

Risk-Adjusted Performance

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 April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

CIE Automotive SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days CIE Automotive SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, CIE Automotive is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Laboratorios Farmaceuticos and CIE Automotive

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

The idea behind Laboratorios Farmaceuticos ROVI and CIE Automotive 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.