Correlation Between Visa and Embotelladora Andina

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

By analyzing existing cross correlation between Visa Class A and Embotelladora Andina SA, you can compare the effects of market volatilities on Visa and Embotelladora Andina 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 Visa with a short position of Embotelladora Andina. Check out your portfolio center. Please also check ongoing floating volatility patterns of Visa and Embotelladora Andina.

Diversification Opportunities for Visa and Embotelladora Andina

0.03

Correlation Coefficient

Visa  Embotelladora Andina

Significant diversification

The 3 months correlation between Visa and Embotelladora is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Visa Class A and Embotelladora Andina SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Embotelladora Andina and Visa 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 Visa Class A are associated (or correlated) with Embotelladora Andina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Embotelladora Andina has no effect on the direction of Visa i.e., Visa and Embotelladora Andina go up and down completely randomly.

Pair Corralation between Visa and Embotelladora Andina

Taking into account the 90-day investment horizon Visa is expected to generate 9.51 times less return on investment than Embotelladora Andina. But when comparing it to its historical volatility, Visa Class A is 2.37 times less risky than Embotelladora Andina. It trades about 0.04 of its potential returns per unit of risk. Embotelladora Andina SA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,600  in Embotelladora Andina SA on October 1, 2024 and sell it today you would earn a total of  90.00  from holding Embotelladora Andina SA or generate 5.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	85.71%
Values	Daily Returns

Visa Class A  vs.  Embotelladora Andina SA

Visa Class A

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Visa Class A are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Visa showed solid returns over the last few months and may actually be approaching a breakup point.

Embotelladora Andina

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Embotelladora Andina SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Embotelladora Andina is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Visa and Embotelladora Andina

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

The idea behind Visa Class A and Embotelladora Andina 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.