Correlation Between BMEB4F and Magazine Luiza

Can any of the company-specific risk be diversified away by investing in both BMEB4F and Magazine Luiza 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 BMEB4F and Magazine Luiza into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BMEB4F and Magazine Luiza SA, you can compare the effects of market volatilities on BMEB4F and Magazine Luiza 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 BMEB4F with a short position of Magazine Luiza. Check out your portfolio center. Please also check ongoing floating volatility patterns of BMEB4F and Magazine Luiza.

Diversification Opportunities for BMEB4F and Magazine Luiza

0.25

Correlation Coefficient

BMEB4F  Magazine Luiza

Modest diversification

The 3 months correlation between BMEB4F and Magazine is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding BMEB4F and Magazine Luiza SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magazine Luiza SA and BMEB4F 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 BMEB4F are associated (or correlated) with Magazine Luiza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magazine Luiza SA has no effect on the direction of BMEB4F i.e., BMEB4F and Magazine Luiza go up and down completely randomly.

Pair Corralation between BMEB4F and Magazine Luiza

Assuming the 90 days trading horizon BMEB4F is expected to generate 172.96 times less return on investment than Magazine Luiza. But when comparing it to its historical volatility, BMEB4F is 2.44 times less risky than Magazine Luiza. It trades about 0.0 of its potential returns per unit of risk. Magazine Luiza SA is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  653.00  in Magazine Luiza SA on December 25, 2024 and sell it today you would earn a total of  393.00  from holding Magazine Luiza SA or generate 60.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.33%
Values	Daily Returns

BMEB4F  vs.  Magazine Luiza SA

BMEB4F

Risk-Adjusted Performance

Very Weak

Over the last 90 days BMEB4F has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, BMEB4F is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Magazine Luiza SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Magazine Luiza SA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Magazine Luiza unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BMEB4F and Magazine Luiza

The main advantage of trading using opposite BMEB4F and Magazine Luiza positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BMEB4F position performs unexpectedly, Magazine Luiza 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 Magazine Luiza will offset losses from the drop in Magazine Luiza's long position.

The idea behind BMEB4F and Magazine Luiza 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.