Correlation Between Aguas Andinas and Nitratos

Can any of the company-specific risk be diversified away by investing in both Aguas Andinas and Nitratos 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 Nitratos 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 Nitratos de Chile, you can compare the effects of market volatilities on Aguas Andinas and Nitratos 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 Nitratos. Check out your portfolio center. Please also check ongoing floating volatility patterns of Aguas Andinas and Nitratos.

Diversification Opportunities for Aguas Andinas and Nitratos

-0.44

Correlation Coefficient

Aguas Andinas  Nitratos

Very good diversification

The 3 months correlation between Aguas and Nitratos is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Aguas Andinas SA and Nitratos de Chile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nitratos de Chile 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 Nitratos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nitratos de Chile has no effect on the direction of Aguas Andinas i.e., Aguas Andinas and Nitratos go up and down completely randomly.

Pair Corralation between Aguas Andinas and Nitratos

Assuming the 90 days trading horizon Aguas Andinas SA is expected to generate 1.02 times more return on investment than Nitratos. However, Aguas Andinas is 1.02 times more volatile than Nitratos de Chile. It trades about 0.09 of its potential returns per unit of risk. Nitratos de Chile is currently generating about -0.06 per unit of risk. If you would invest  27,400  in Aguas Andinas SA on September 4, 2024 and sell it today you would earn a total of  2,130  from holding Aguas Andinas SA or generate 7.77% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

Aguas Andinas SA  vs.  Nitratos de Chile

Aguas Andinas SA

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aguas Andinas SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Aguas Andinas may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Nitratos de Chile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nitratos de Chile has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Nitratos is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Aguas Andinas and Nitratos

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

The idea behind Aguas Andinas SA and Nitratos de Chile 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.