Correlation Between Compania and Metrogas

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

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

Diversification Opportunities for Compania and Metrogas

0.88

Correlation Coefficient

Compania  Metrogas

Very poor diversification

The 3 months correlation between Compania and Metrogas is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Transporte and Metrogas SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metrogas SA and Compania 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 Compania de Transporte are associated (or correlated) with Metrogas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metrogas SA has no effect on the direction of Compania i.e., Compania and Metrogas go up and down completely randomly.

Pair Corralation between Compania and Metrogas

Assuming the 90 days trading horizon Compania is expected to generate 1.29 times less return on investment than Metrogas. But when comparing it to its historical volatility, Compania de Transporte is 1.14 times less risky than Metrogas. It trades about 0.16 of its potential returns per unit of risk. Metrogas SA is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  8,760  in Metrogas SA on September 5, 2024 and sell it today you would earn a total of  261,240  from holding Metrogas SA or generate 2982.19% return on investment over 90 days.

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

Compania de Transporte  vs.  Metrogas SA

Compania de Transporte

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Compania de Transporte are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Compania sustained solid returns over the last few months and may actually be approaching a breakup point.

Metrogas SA

Risk-Adjusted Performance

34 of 100

Very Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Metrogas SA are ranked lower than 34 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Metrogas sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Compania and Metrogas

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

The idea behind Compania de Transporte and Metrogas 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.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.