Correlation Between Aguas Andinas and Energia Latina

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

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

Diversification Opportunities for Aguas Andinas and Energia Latina

0.35

Correlation Coefficient

Aguas Andinas  Energia Latina

Weak diversification

The 3 months correlation between Aguas and Energia is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Aguas Andinas SA and Energia Latina SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energia Latina SA and Aguas Andinas 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 Aguas Andinas SA are associated (or correlated) with Energia Latina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energia Latina SA has no effect on the direction of Aguas Andinas i.e., Aguas Andinas and Energia Latina go up and down completely randomly.

Pair Corralation between Aguas Andinas and Energia Latina

Assuming the 90 days trading horizon Aguas Andinas SA is expected to generate 3.47 times more return on investment than Energia Latina. However, Aguas Andinas is 3.47 times more volatile than Energia Latina SA. It trades about 0.06 of its potential returns per unit of risk. Energia Latina SA is currently generating about 0.09 per unit of risk. If you would invest  27,200  in Aguas Andinas SA on September 3, 2024 and sell it today you would earn a total of  2,330  from holding Aguas Andinas SA or generate 8.57% return on investment over 90 days.

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

Aguas Andinas SA  vs.  Energia Latina SA

Aguas Andinas SA

Risk-Adjusted Performance

8 of 100

OK

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

Energia Latina SA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energia Latina SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Energia Latina is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Aguas Andinas and Energia Latina

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

The idea behind Aguas Andinas SA and Energia Latina 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..