Correlation Between CIE Automotive and Laboratorios Farmaceuticos

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

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

Diversification Opportunities for CIE Automotive and Laboratorios Farmaceuticos

0.06

Correlation Coefficient

CIE Automotive  Laboratorios Farmaceuticos

Significant diversification

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

Pair Corralation between CIE Automotive and Laboratorios Farmaceuticos

Assuming the 90 days trading horizon CIE Automotive SA is expected to generate 0.53 times more return on investment than Laboratorios Farmaceuticos. However, CIE Automotive SA is 1.87 times less risky than Laboratorios Farmaceuticos. It trades about 0.02 of its potential returns per unit of risk. Laboratorios Farmaceuticos ROVI is currently generating about -0.12 per unit of risk. If you would invest  2,545  in CIE Automotive SA on September 16, 2024 and sell it today you would earn a total of  35.00  from holding CIE Automotive SA or generate 1.38% return on investment over 90 days.

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

CIE Automotive SA  vs.  Laboratorios Farmaceuticos ROV

CIE Automotive SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CIE Automotive SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, CIE Automotive is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Laboratorios Farmaceuticos

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Laboratorios Farmaceuticos ROVI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with CIE Automotive and Laboratorios Farmaceuticos

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

The idea behind CIE Automotive SA and Laboratorios Farmaceuticos ROVI 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.