Correlation Between Grupo Aval and Orient Overseas

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

By analyzing existing cross correlation between Grupo Aval and Orient Overseas Limited, you can compare the effects of market volatilities on Grupo Aval and Orient Overseas 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 Grupo Aval with a short position of Orient Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Grupo Aval and Orient Overseas.

Diversification Opportunities for Grupo Aval and Orient Overseas

-0.56

Correlation Coefficient

Grupo Aval  Orient Overseas

Excellent diversification

The 3 months correlation between Grupo and Orient is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Grupo Aval and Orient Overseas Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orient Overseas and Grupo Aval 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 Grupo Aval are associated (or correlated) with Orient Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orient Overseas has no effect on the direction of Grupo Aval i.e., Grupo Aval and Orient Overseas go up and down completely randomly.

Pair Corralation between Grupo Aval and Orient Overseas

Given the investment horizon of 90 days Grupo Aval is expected to under-perform the Orient Overseas. But the stock apears to be less risky and, when comparing its historical volatility, Grupo Aval is 6.98 times less risky than Orient Overseas. The stock trades about -0.02 of its potential returns per unit of risk. The Orient Overseas Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,529  in Orient Overseas Limited on January 17, 2024 and sell it today you would lose (305.00) from holding Orient Overseas Limited or give up 19.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	87.07%
Values	Daily Returns

Grupo Aval  vs.  Orient Overseas Limited

Grupo Aval

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Grupo Aval has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Grupo Aval is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Orient Overseas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orient Overseas Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Grupo Aval and Orient Overseas

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

The idea behind Grupo Aval and Orient Overseas Limited 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.