Correlation Between American Public and Companhia

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

By analyzing existing cross correlation between American Public Education and Companhia de Saneamento, you can compare the effects of market volatilities on American Public and Companhia 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 American Public with a short position of Companhia. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Public and Companhia.

Diversification Opportunities for American Public and Companhia

-0.15

Correlation Coefficient

American Public  Companhia

Good diversification

The 3 months correlation between American and Companhia is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and Companhia de Saneamento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Saneamento and American Public 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 American Public Education are associated (or correlated) with Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Saneamento has no effect on the direction of American Public i.e., American Public and Companhia go up and down completely randomly.

Pair Corralation between American Public and Companhia

Assuming the 90 days horizon American Public Education is expected to generate 1.17 times more return on investment than Companhia. However, American Public is 1.17 times more volatile than Companhia de Saneamento. It trades about 0.07 of its potential returns per unit of risk. Companhia de Saneamento is currently generating about -0.05 per unit of risk. If you would invest  1,970  in American Public Education on October 10, 2024 and sell it today you would earn a total of  50.00  from holding American Public Education or generate 2.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

American Public Education  vs.  Companhia de Saneamento

American Public Education

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, American Public reported solid returns over the last few months and may actually be approaching a breakup point.

Companhia de Saneamento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia de Saneamento has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, Companhia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with American Public and Companhia

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

The idea behind American Public Education and Companhia de Saneamento 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.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.