Correlation Between Afya and Arco Platform

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

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

Diversification Opportunities for Afya and Arco Platform

-0.12

Correlation Coefficient

Afya  Arco Platform

Good diversification

The 3 months correlation between Afya and Arco is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Afya and Arco Platform in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arco Platform and Afya 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 Afya are associated (or correlated) with Arco Platform. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arco Platform has no effect on the direction of Afya i.e., Afya and Arco Platform go up and down completely randomly.

Pair Corralation between Afya and Arco Platform

Given the investment horizon of 90 days Afya is expected to generate 1.41 times less return on investment than Arco Platform. In addition to that, Afya is 1.02 times more volatile than Arco Platform. It trades about 0.02 of its total potential returns per unit of risk. Arco Platform is currently generating about 0.03 per unit of volatility. If you would invest  1,210  in Arco Platform on September 3, 2024 and sell it today you would earn a total of  77.00  from holding Arco Platform or generate 6.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	30.91%
Values	Daily Returns

Afya  vs.  Arco Platform

Afya

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Afya are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Afya is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Arco Platform

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arco Platform has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Arco Platform is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Afya and Arco Platform

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

The idea behind Afya and Arco Platform 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.