Correlation Between Laboratorios Farmaceuticos and Grupo Catalana

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

Diversification Opportunities for Laboratorios Farmaceuticos and Grupo Catalana

0.74

Correlation Coefficient

Laboratorios Farmaceuticos  Grupo Catalana

Poor diversification

The 3 months correlation between Laboratorios and Grupo is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Laboratorios Farmaceuticos ROV and Grupo Catalana Occidente in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Grupo Catalana Occidente 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 Grupo Catalana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Grupo Catalana Occidente has no effect on the direction of Laboratorios Farmaceuticos i.e., Laboratorios Farmaceuticos and Grupo Catalana go up and down completely randomly.

Pair Corralation between Laboratorios Farmaceuticos and Grupo Catalana

Assuming the 90 days trading horizon Laboratorios Farmaceuticos ROVI is expected to generate 2.01 times more return on investment than Grupo Catalana. However, Laboratorios Farmaceuticos is 2.01 times more volatile than Grupo Catalana Occidente. It trades about 0.07 of its potential returns per unit of risk. Grupo Catalana Occidente is currently generating about -0.18 per unit of risk. If you would invest  6,340  in Laboratorios Farmaceuticos ROVI on October 10, 2024 and sell it today you would earn a total of  105.00  from holding Laboratorios Farmaceuticos ROVI or generate 1.66% return on investment over 90 days.

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

Laboratorios Farmaceuticos ROV  vs.  Grupo Catalana Occidente

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 latest unsteady performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Grupo Catalana Occidente

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grupo Catalana Occidente has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Grupo Catalana 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 Grupo Catalana

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

The idea behind Laboratorios Farmaceuticos ROVI and Grupo Catalana Occidente 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.