Correlation Between Compania and United States
Can any of the company-specific risk be diversified away by investing in both Compania and United States 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 United States 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 United States Steel, you can compare the effects of market volatilities on Compania and United States 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 United States. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania and United States.
Diversification Opportunities for Compania and United States
-0.7 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Compania and United is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Transporte and United States Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on United States Steel 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 United States. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of United States Steel has no effect on the direction of Compania i.e., Compania and United States go up and down completely randomly.
Pair Corralation between Compania and United States
Assuming the 90 days trading horizon Compania is expected to generate 22.35 times less return on investment than United States. In addition to that, Compania is 1.03 times more volatile than United States Steel. It trades about 0.01 of its total potential returns per unit of risk. United States Steel is currently generating about 0.19 per unit of volatility. If you would invest 1,287,500 in United States Steel on November 2, 2024 and sell it today you would earn a total of 145,000 from holding United States Steel or generate 11.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Compania de Transporte vs. United States Steel
Performance |
| Timeline |
| Compania de Transporte |
| United States Steel |
Compania and United States Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Compania and United States
The main advantage of trading using opposite Compania and United States positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Compania position performs unexpectedly, United States 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 United States will offset losses from the drop in United States' long position.The idea behind Compania de Transporte and United States Steel 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.| United States vs. Boldt SA | United States vs. Agrometal SAI | United States vs. Capex SA | United States vs. Pfizer Inc |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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