Correlation Between Industrias Bachoco and Carvana

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

By analyzing existing cross correlation between Industrias Bachoco SAB and Carvana Co, you can compare the effects of market volatilities on Industrias Bachoco and Carvana 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 Industrias Bachoco with a short position of Carvana. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrias Bachoco and Carvana.

Diversification Opportunities for Industrias Bachoco and Carvana

0.87

Correlation Coefficient

Industrias Bachoco  Carvana

Very poor diversification

The 3 months correlation between Industrias and Carvana is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Industrias Bachoco SAB and Carvana Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Carvana and Industrias Bachoco 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 Industrias Bachoco SAB are associated (or correlated) with Carvana. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Carvana has no effect on the direction of Industrias Bachoco i.e., Industrias Bachoco and Carvana go up and down completely randomly.

Pair Corralation between Industrias Bachoco and Carvana

Considering the 90-day investment horizon Industrias Bachoco is expected to generate 4.93 times less return on investment than Carvana. But when comparing it to its historical volatility, Industrias Bachoco SAB is 5.43 times less risky than Carvana. It trades about 0.05 of its potential returns per unit of risk. Carvana Co is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  6,574  in Carvana Co on January 17, 2024 and sell it today you would earn a total of  409.00  from holding Carvana Co or generate 6.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	50.3%
Values	Daily Returns

Industrias Bachoco SAB  vs.  Carvana Co

Industrias Bachoco SAB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Industrias Bachoco SAB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong fundamental drivers, Industrias Bachoco is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Carvana

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Carvana Co are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Carvana sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Industrias Bachoco and Carvana

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

The idea behind Industrias Bachoco SAB and Carvana Co 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.