Correlation Between Companhia and Rio Paranapanema

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

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

Diversification Opportunities for Companhia and Rio Paranapanema

-0.47

Correlation Coefficient

Companhia  Rio Paranapanema

Very good diversification

The 3 months correlation between Companhia and Rio is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Gs 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 Companhia 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 Companhia de Gs 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 Companhia i.e., Companhia and Rio Paranapanema go up and down completely randomly.

Pair Corralation between Companhia and Rio Paranapanema

Assuming the 90 days trading horizon Companhia de Gs is expected to generate 3.31 times more return on investment than Rio Paranapanema. However, Companhia is 3.31 times more volatile than Rio Paranapanema Energia. It trades about 0.02 of its potential returns per unit of risk. Rio Paranapanema Energia is currently generating about 0.05 per unit of risk. If you would invest  12,011  in Companhia de Gs on December 2, 2024 and sell it today you would lose (2.00) from holding Companhia de Gs or give up 0.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	96.77%
Values	Daily Returns

Companhia de Gs  vs.  Rio Paranapanema Energia

Companhia de Gs

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia de Gs are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Companhia may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Rio Paranapanema Energia

Risk-Adjusted Performance

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 stable basic indicators, Rio Paranapanema is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Companhia and Rio Paranapanema

The main advantage of trading using opposite Companhia and Rio Paranapanema positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Companhia 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 Companhia de Gs 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.