Correlation Between Masco and Promotora

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

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

Diversification Opportunities for Masco and Promotora

0.79

Correlation Coefficient

Masco  Promotora

Poor diversification

The 3 months correlation between Masco and Promotora is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Masco 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 Masco 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 Masco 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 Masco i.e., Masco and Promotora go up and down completely randomly.

Pair Corralation between Masco and Promotora

Assuming the 90 days trading horizon Masco is expected to generate 29.39 times less return on investment than Promotora. But when comparing it to its historical volatility, Masco is 23.89 times less risky than Promotora. It trades about 0.13 of its potential returns per unit of risk. Promotora y Operadora is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  11,339  in Promotora y Operadora on September 29, 2024 and sell it today you would earn a total of  3,660  from holding Promotora y Operadora or generate 32.28% return on investment over 90 days.

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

Masco  vs.  Promotora y Operadora

Masco

Risk-Adjusted Performance

10 of 100

OK

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

Promotora y Operadora

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Promotora y Operadora are ranked lower than 20 (%) 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 Masco and Promotora

The main advantage of trading using opposite Masco and Promotora positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Masco 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 Masco 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.