Correlation Between Select Sector and Promotora

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

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

Diversification Opportunities for Select Sector and Promotora

0.06

Correlation Coefficient

Select Sector  Promotora

Significant diversification

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

Pair Corralation between Select Sector and Promotora

Assuming the 90 days trading horizon Select Sector is expected to generate 3.45 times less return on investment than Promotora. In addition to that, Select Sector is 1.3 times more volatile than Promotora y Operadora. It trades about 0.03 of its total potential returns per unit of risk. Promotora y Operadora is currently generating about 0.14 per unit of volatility. If you would invest  14,734  in Promotora y Operadora on December 27, 2024 and sell it today you would earn a total of  2,066  from holding Promotora y Operadora or generate 14.02% return on investment over 90 days.

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

The Select Sector  vs.  Promotora y Operadora

Select Sector

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Select Sector are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Select Sector is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Promotora y Operadora

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Promotora y Operadora are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite quite weak technical and fundamental indicators, Promotora disclosed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Select Sector and Promotora

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

The idea behind The Select Sector and Promotora y Operadora 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.