Correlation Between Alupar Investimento and Rio Paranapanema

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

By analyzing existing cross correlation between Alupar Investimento SA and Rio Paranapanema Energia, you can compare the effects of market volatilities on Alupar Investimento and Rio Paranapanema 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 Alupar Investimento with a short position of Rio Paranapanema. Check out your portfolio center. Please also check ongoing floating volatility patterns of Alupar Investimento and Rio Paranapanema.

Diversification Opportunities for Alupar Investimento and Rio Paranapanema

-0.54

Correlation Coefficient

Alupar Investimento  Rio Paranapanema

Excellent diversification

The 3 months correlation between Alupar and Rio is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Alupar Investimento SA and Rio Paranapanema Energia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Paranapanema Energia and Alupar Investimento 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 Alupar Investimento SA are associated (or correlated) with Rio Paranapanema. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Paranapanema Energia has no effect on the direction of Alupar Investimento i.e., Alupar Investimento and Rio Paranapanema go up and down completely randomly.

Pair Corralation between Alupar Investimento and Rio Paranapanema

Assuming the 90 days trading horizon Alupar Investimento SA is expected to under-perform the Rio Paranapanema. But the stock apears to be less risky and, when comparing its historical volatility, Alupar Investimento SA is 2.87 times less risky than Rio Paranapanema. The stock trades about -0.19 of its potential returns per unit of risk. The Rio Paranapanema Energia is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,721  in Rio Paranapanema Energia on September 14, 2024 and sell it today you would earn a total of  131.00  from holding Rio Paranapanema Energia or generate 4.81% return on investment over 90 days.

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

Alupar Investimento SA  vs.  Rio Paranapanema Energia

Alupar Investimento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alupar Investimento SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Rio Paranapanema Energia

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Paranapanema Energia are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rio Paranapanema may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Alupar Investimento and Rio Paranapanema

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

The idea behind Alupar Investimento SA and Rio Paranapanema Energia 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.