Correlation Between Hot Chili and Los Andes
Can any of the company-specific risk be diversified away by investing in both Hot Chili and Los Andes 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 Hot Chili and Los Andes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hot Chili Limited and Los Andes Copper, you can compare the effects of market volatilities on Hot Chili and Los Andes 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 Hot Chili with a short position of Los Andes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hot Chili and Los Andes.
Diversification Opportunities for Hot Chili and Los Andes
Modest diversification
The 3 months correlation between Hot and Los is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Hot Chili Limited and Los Andes Copper in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Los Andes Copper and Hot Chili 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 Hot Chili Limited are associated (or correlated) with Los Andes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Los Andes Copper has no effect on the direction of Hot Chili i.e., Hot Chili and Los Andes go up and down completely randomly.
Pair Corralation between Hot Chili and Los Andes
Assuming the 90 days horizon Hot Chili Limited is expected to under-perform the Los Andes. In addition to that, Hot Chili is 1.13 times more volatile than Los Andes Copper. It trades about -0.06 of its total potential returns per unit of risk. Los Andes Copper is currently generating about -0.05 per unit of volatility. If you would invest 578.00 in Los Andes Copper on September 1, 2024 and sell it today you would lose (24.00) from holding Los Andes Copper or give up 4.15% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hot Chili Limited vs. Los Andes Copper
Performance |
| Timeline |
| Hot Chili Limited |
| Los Andes Copper |
Hot Chili and Los Andes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hot Chili and Los Andes
The main advantage of trading using opposite Hot Chili and Los Andes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hot Chili position performs unexpectedly, Los Andes 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 Los Andes will offset losses from the drop in Los Andes' long position.| Hot Chili vs. Three Valley Copper | Hot Chili vs. World Copper | Hot Chili vs. CopperCorp Resources | Hot Chili vs. Copper Fox Metals |
| Los Andes vs. South32 Limited | Los Andes vs. NioCorp Developments Ltd | Los Andes vs. HUMANA INC | Los Andes vs. SCOR PK |
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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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