Correlation Between AAC TECHNOLOGHLDGADR and EDP Renováveis

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

By analyzing existing cross correlation between AAC TECHNOLOGHLDGADR and EDP Renovveis SA, you can compare the effects of market volatilities on AAC TECHNOLOGHLDGADR and EDP Renováveis 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 AAC TECHNOLOGHLDGADR with a short position of EDP Renováveis. Check out your portfolio center. Please also check ongoing floating volatility patterns of AAC TECHNOLOGHLDGADR and EDP Renováveis.

Diversification Opportunities for AAC TECHNOLOGHLDGADR and EDP Renováveis

-0.72

Correlation Coefficient

AAC TECHNOLOGHLDGADR  EDP Renováveis

Pay attention - limited upside

The 3 months correlation between AAC and EDP is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding AAC TECHNOLOGHLDGADR and EDP Renovveis SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Renovveis SA and AAC TECHNOLOGHLDGADR 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 AAC TECHNOLOGHLDGADR are associated (or correlated) with EDP Renováveis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Renovveis SA has no effect on the direction of AAC TECHNOLOGHLDGADR i.e., AAC TECHNOLOGHLDGADR and EDP Renováveis go up and down completely randomly.

Pair Corralation between AAC TECHNOLOGHLDGADR and EDP Renováveis

Assuming the 90 days horizon AAC TECHNOLOGHLDGADR is expected to generate 1.64 times more return on investment than EDP Renováveis. However, AAC TECHNOLOGHLDGADR is 1.64 times more volatile than EDP Renovveis SA. It trades about 0.07 of its potential returns per unit of risk. EDP Renovveis SA is currently generating about -0.06 per unit of risk. If you would invest  197.00  in AAC TECHNOLOGHLDGADR on October 4, 2024 and sell it today you would earn a total of  251.00  from holding AAC TECHNOLOGHLDGADR or generate 127.41% return on investment over 90 days.

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

AAC TECHNOLOGHLDGADR  vs.  EDP Renovveis SA

AAC TECHNOLOGHLDGADR

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AAC TECHNOLOGHLDGADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, AAC TECHNOLOGHLDGADR reported solid returns over the last few months and may actually be approaching a breakup point.

EDP Renovveis SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Renovveis SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with AAC TECHNOLOGHLDGADR and EDP Renováveis

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

The idea behind AAC TECHNOLOGHLDGADR and EDP Renovveis SA 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.