Correlation Between Industrias Bachoco and Kaiser Aluminum

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Can any of the company-specific risk be diversified away by investing in both Industrias Bachoco and Kaiser Aluminum 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 Kaiser Aluminum into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Industrias Bachoco SA and Kaiser Aluminum, you can compare the effects of market volatilities on Industrias Bachoco and Kaiser Aluminum 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 Kaiser Aluminum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrias Bachoco and Kaiser Aluminum.

Diversification Opportunities for Industrias Bachoco and Kaiser Aluminum

0.85
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Industrias and Kaiser is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Industrias Bachoco SA and Kaiser Aluminum in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kaiser Aluminum 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 SA are associated (or correlated) with Kaiser Aluminum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kaiser Aluminum has no effect on the direction of Industrias Bachoco i.e., Industrias Bachoco and Kaiser Aluminum go up and down completely randomly.

Pair Corralation between Industrias Bachoco and Kaiser Aluminum

Considering the 90-day investment horizon Industrias Bachoco is expected to generate 3.01 times less return on investment than Kaiser Aluminum. But when comparing it to its historical volatility, Industrias Bachoco SA is 2.98 times less risky than Kaiser Aluminum. It trades about 0.24 of its potential returns per unit of risk. Kaiser Aluminum is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  6,074  in Kaiser Aluminum on August 31, 2022 and sell it today you would earn a total of  2,645  from holding Kaiser Aluminum or generate 43.55% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Industrias Bachoco SA  vs.  Kaiser Aluminum

 Performance (%) 
       Timeline  
Industrias Bachoco 
Industrias Performance
11 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Industrias Bachoco SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat sluggish fundamental drivers, Industrias Bachoco may actually be approaching a critical reversion point that can send shares even higher in December 2022.

Industrias Price Channel

Kaiser Aluminum 
Kaiser Performance
7 of 100
Compared to the overall equity markets, risk-adjusted returns on investments in Kaiser Aluminum are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak essential indicators, Kaiser Aluminum unveiled solid returns over the last few months and may actually be approaching a breakup point.

Kaiser Price Channel

Industrias Bachoco and Kaiser Aluminum Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Industrias Bachoco and Kaiser Aluminum

The main advantage of trading using opposite Industrias Bachoco and Kaiser Aluminum positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrias Bachoco position performs unexpectedly, Kaiser Aluminum 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 Kaiser Aluminum will offset losses from the drop in Kaiser Aluminum's long position.
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The idea behind Industrias Bachoco SA and Kaiser Aluminum 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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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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.

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