Correlation Between Compania and SP Merval

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

By analyzing existing cross correlation between Compania de Transporte and SP Merval, you can compare the effects of market volatilities on Compania and SP Merval 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 Compania with a short position of SP Merval. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania and SP Merval.

Diversification Opportunities for Compania and SP Merval

0.0

Correlation Coefficient

Compania  SP Merval

Pay attention - limited upside

The 3 months correlation between Compania and MERV is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Transporte and SP Merval in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SP Merval and Compania 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 Compania de Transporte are associated (or correlated) with SP Merval. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SP Merval has no effect on the direction of Compania i.e., Compania and SP Merval go up and down completely randomly.

Pair Corralation between Compania and SP Merval

Assuming the 90 days trading horizon Compania de Transporte is expected to generate 1.52 times more return on investment than SP Merval. However, Compania is 1.52 times more volatile than SP Merval. It trades about 0.16 of its potential returns per unit of risk. SP Merval is currently generating about 0.15 per unit of risk. If you would invest  15,175  in Compania de Transporte on August 30, 2024 and sell it today you would earn a total of  203,825  from holding Compania de Transporte or generate 1343.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.38%
Values	Daily Returns

Compania de Transporte  vs.  SP Merval

Pair Trading with Compania and SP Merval

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

The idea behind Compania de Transporte and SP Merval 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.