Correlation Between Compania and United States

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

Diversification Opportunities for Compania and United States

-0.06

Correlation Coefficient

Compania  United States

Good diversification

The 3 months correlation between Compania and United is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Transporte and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of Compania i.e., Compania and United States go up and down completely randomly.

Pair Corralation between Compania and United States

Assuming the 90 days trading horizon Compania de Transporte is expected to generate 0.72 times more return on investment than United States. However, Compania de Transporte is 1.39 times less risky than United States. It trades about 0.15 of its potential returns per unit of risk. United States Steel is currently generating about -0.02 per unit of risk. If you would invest  173,500  in Compania de Transporte on August 30, 2024 and sell it today you would earn a total of  45,500  from holding Compania de Transporte or generate 26.22% return on investment over 90 days.

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

Compania de Transporte  vs.  United States Steel

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.

United States Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days United States Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, United States is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Compania and United States

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

The idea behind Compania de Transporte and United States Steel 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.