Correlation Between American Public and Cogna Educacao

Can any of the company-specific risk be diversified away by investing in both American Public and Cogna Educacao 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 Cogna Educacao 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 Cogna Educacao SA, you can compare the effects of market volatilities on American Public and Cogna Educacao 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 Cogna Educacao. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Public and Cogna Educacao.

Diversification Opportunities for American Public and Cogna Educacao

0.09

Correlation Coefficient

American Public  Cogna Educacao

Significant diversification

The 3 months correlation between American and Cogna is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and Cogna Educacao SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogna Educacao SA 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 Cogna Educacao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogna Educacao SA has no effect on the direction of American Public i.e., American Public and Cogna Educacao go up and down completely randomly.

Pair Corralation between American Public and Cogna Educacao

Given the investment horizon of 90 days American Public Education is expected to generate 0.65 times more return on investment than Cogna Educacao. However, American Public Education is 1.53 times less risky than Cogna Educacao. It trades about 0.38 of its potential returns per unit of risk. Cogna Educacao SA is currently generating about -0.06 per unit of risk. If you would invest  1,517  in American Public Education on September 1, 2024 and sell it today you would earn a total of  545.00  from holding American Public Education or generate 35.93% return on investment over 90 days.

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

American Public Education  vs.  Cogna Educacao SA

American Public Education

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical and fundamental indicators, American Public demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Cogna Educacao SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cogna Educacao SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Cogna Educacao is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with American Public and Cogna Educacao

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

The idea behind American Public Education and Cogna Educacao 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.