Correlation Between CAP SA and Empresas CMPC

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

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

Diversification Opportunities for CAP SA and Empresas CMPC

0.78

Correlation Coefficient

CAP SA  Empresas CMPC

Poor diversification

The 3 months correlation between CAP and Empresas is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding CAP SA and Empresas CMPC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empresas CMPC and CAP SA 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 CAP SA are associated (or correlated) with Empresas CMPC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empresas CMPC has no effect on the direction of CAP SA i.e., CAP SA and Empresas CMPC go up and down completely randomly.

Pair Corralation between CAP SA and Empresas CMPC

Assuming the 90 days trading horizon CAP SA is expected to generate 1.59 times more return on investment than Empresas CMPC. However, CAP SA is 1.59 times more volatile than Empresas CMPC. It trades about 0.05 of its potential returns per unit of risk. Empresas CMPC is currently generating about 0.06 per unit of risk. If you would invest  530,000  in CAP SA on September 12, 2024 and sell it today you would earn a total of  23,900  from holding CAP SA or generate 4.51% return on investment over 90 days.

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

CAP SA  vs.  Empresas CMPC

CAP SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CAP SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, CAP SA is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Empresas CMPC

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Empresas CMPC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Empresas CMPC is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with CAP SA and Empresas CMPC

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

The idea behind CAP SA and Empresas CMPC 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.