Correlation Between Vapores and Cencosud

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

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

Diversification Opportunities for Vapores and Cencosud

0.6

Correlation Coefficient

Vapores  Cencosud

Poor diversification

The 3 months correlation between Vapores and Cencosud is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Vapores and Cencosud in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cencosud and Vapores 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 Vapores are associated (or correlated) with Cencosud. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cencosud has no effect on the direction of Vapores i.e., Vapores and Cencosud go up and down completely randomly.

Pair Corralation between Vapores and Cencosud

Assuming the 90 days trading horizon Vapores is expected to generate 2.97 times less return on investment than Cencosud. But when comparing it to its historical volatility, Vapores is 1.12 times less risky than Cencosud. It trades about 0.1 of its potential returns per unit of risk. Cencosud is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  208,000  in Cencosud on December 2, 2024 and sell it today you would earn a total of  45,000  from holding Cencosud or generate 21.63% return on investment over 90 days.

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

Vapores  vs.  Cencosud

Vapores

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vapores are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Vapores may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Cencosud

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Cencosud are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting basic indicators, Cencosud unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vapores and Cencosud

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

The idea behind Vapores and Cencosud 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.