Correlation Between Companhia and Manufatura

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

Diversification Opportunities for Companhia and Manufatura

-0.48

Correlation Coefficient

Companhia  Manufatura

Very good diversification

The 3 months correlation between Companhia and Manufatura is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Gs and Manufatura de Brinquedos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Manufatura de Brinquedos 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 Manufatura. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Manufatura de Brinquedos has no effect on the direction of Companhia i.e., Companhia and Manufatura go up and down completely randomly.

Pair Corralation between Companhia and Manufatura

Assuming the 90 days trading horizon Companhia de Gs is expected to under-perform the Manufatura. But the preferred stock apears to be less risky and, when comparing its historical volatility, Companhia de Gs is 3.51 times less risky than Manufatura. The preferred stock trades about -0.06 of its potential returns per unit of risk. The Manufatura de Brinquedos is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  340.00  in Manufatura de Brinquedos on September 24, 2024 and sell it today you would earn a total of  16.00  from holding Manufatura de Brinquedos or generate 4.71% return on investment over 90 days.

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

Companhia de Gs  vs.  Manufatura de Brinquedos

Companhia de Gs

Risk-Adjusted Performance

1 of 100

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

Manufatura de Brinquedos

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Manufatura de Brinquedos has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Preferred Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Companhia and Manufatura

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

The idea behind Companhia de Gs and Manufatura de Brinquedos 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 Global Correlations module to find global opportunities by holding instruments from different markets.