Correlation Between Promotora and Credicorp

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

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

Diversification Opportunities for Promotora and Credicorp

0.76

Correlation Coefficient

Promotora  Credicorp

Poor diversification

The 3 months correlation between Promotora and Credicorp is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Promotora y Operadora and Credicorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Credicorp and Promotora 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 Promotora y Operadora are associated (or correlated) with Credicorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Credicorp has no effect on the direction of Promotora i.e., Promotora and Credicorp go up and down completely randomly.

Pair Corralation between Promotora and Credicorp

Assuming the 90 days trading horizon Promotora y Operadora is expected to generate 0.66 times more return on investment than Credicorp. However, Promotora y Operadora is 1.51 times less risky than Credicorp. It trades about 0.27 of its potential returns per unit of risk. Credicorp is currently generating about 0.09 per unit of risk. If you would invest  12,012  in Promotora y Operadora on September 28, 2024 and sell it today you would earn a total of  2,987  from holding Promotora y Operadora or generate 24.87% return on investment over 90 days.

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

Promotora y Operadora  vs.  Credicorp

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.

Credicorp

Risk-Adjusted Performance

7 of 100

OK

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

Pair Trading with Promotora and Credicorp

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

The idea behind Promotora y Operadora and Credicorp 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.