Correlation Between State Street and Controladora Vuela

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

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

Diversification Opportunities for State Street and Controladora Vuela

0.68

Correlation Coefficient

State Street  Controladora Vuela

Poor diversification

The 3 months correlation between State and Controladora is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding State Street and Controladora Vuela Compaa in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Controladora Vuela Compaa and State Street 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 State Street are associated (or correlated) with Controladora Vuela. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Controladora Vuela Compaa has no effect on the direction of State Street i.e., State Street and Controladora Vuela go up and down completely randomly.

Pair Corralation between State Street and Controladora Vuela

Assuming the 90 days trading horizon State Street is expected to generate 1.39 times less return on investment than Controladora Vuela. But when comparing it to its historical volatility, State Street is 1.14 times less risky than Controladora Vuela. It trades about 0.18 of its potential returns per unit of risk. Controladora Vuela Compaa is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,294  in Controladora Vuela Compaa on September 16, 2024 and sell it today you would earn a total of  395.00  from holding Controladora Vuela Compaa or generate 30.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

State Street  vs.  Controladora Vuela Compaa

State Street

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in State Street are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, State Street showed solid returns over the last few months and may actually be approaching a breakup point.

Controladora Vuela Compaa

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Controladora Vuela Compaa are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak essential indicators, Controladora Vuela sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with State Street and Controladora Vuela

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

The idea behind State Street and Controladora Vuela Compaa 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.