Correlation Between Credit Acceptance and PagSeguro Digital

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

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

Diversification Opportunities for Credit Acceptance and PagSeguro Digital

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Correlation Coefficient

Credit Acceptance  PagSeguro Digital

Pay attention - limited upside

The 3 months correlation between Credit and PagSeguro is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Credit Acceptance and PagSeguro Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PagSeguro Digital and Credit Acceptance 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 Credit Acceptance are associated (or correlated) with PagSeguro Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PagSeguro Digital has no effect on the direction of Credit Acceptance i.e., Credit Acceptance and PagSeguro Digital go up and down completely randomly.

Pair Corralation between Credit Acceptance and PagSeguro Digital

Assuming the 90 days trading horizon Credit Acceptance is expected to generate 0.67 times more return on investment than PagSeguro Digital. However, Credit Acceptance is 1.5 times less risky than PagSeguro Digital. It trades about 0.03 of its potential returns per unit of risk. PagSeguro Digital is currently generating about 0.01 per unit of risk. If you would invest  25,800  in Credit Acceptance on September 24, 2024 and sell it today you would earn a total of  6,700  from holding Credit Acceptance or generate 25.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.8%
Values	Daily Returns

Credit Acceptance  vs.  PagSeguro Digital

Credit Acceptance

Risk-Adjusted Performance

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Very Weak

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

PagSeguro Digital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PagSeguro Digital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Credit Acceptance and PagSeguro Digital

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

The idea behind Credit Acceptance and PagSeguro Digital 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.