Correlation Between Compania and Petra Diamonds

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

By analyzing existing cross correlation between Compania de Minas and Petra Diamonds Limited, you can compare the effects of market volatilities on Compania and Petra Diamonds 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 Compania with a short position of Petra Diamonds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Compania and Petra Diamonds.

Diversification Opportunities for Compania and Petra Diamonds

-0.11

Correlation Coefficient

Compania  Petra Diamonds

Good diversification

The 3 months correlation between Compania and Petra is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Compania de Minas and Petra Diamonds Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Petra Diamonds and Compania 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 Compania de Minas are associated (or correlated) with Petra Diamonds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Petra Diamonds has no effect on the direction of Compania i.e., Compania and Petra Diamonds go up and down completely randomly.

Pair Corralation between Compania and Petra Diamonds

Considering the 90-day investment horizon Compania de Minas is expected to generate 0.75 times more return on investment than Petra Diamonds. However, Compania de Minas is 1.33 times less risky than Petra Diamonds. It trades about 0.21 of its potential returns per unit of risk. Petra Diamonds Limited is currently generating about -0.02 per unit of risk. If you would invest  1,193  in Compania de Minas on December 28, 2024 and sell it today you would earn a total of  333.00  from holding Compania de Minas or generate 27.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Compania de Minas  vs.  Petra Diamonds Limited

Compania de Minas

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Compania de Minas are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Compania displayed solid returns over the last few months and may actually be approaching a breakup point.

Petra Diamonds

Risk-Adjusted Performance

Insignificant

Over the last 90 days Petra Diamonds Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Petra Diamonds is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Compania and Petra Diamonds

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

The idea behind Compania de Minas and Petra Diamonds Limited 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.