Correlation Between Cosan SA and Telefnica Brasil

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

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

Diversification Opportunities for Cosan SA and Telefnica Brasil

-0.61

Correlation Coefficient

Cosan SA  Telefnica Brasil

Excellent diversification

The 3 months correlation between Cosan and Telefnica is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding Cosan SA and Telefnica Brasil SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica Brasil and Cosan SA 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 Cosan SA are associated (or correlated) with Telefnica Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefnica Brasil has no effect on the direction of Cosan SA i.e., Cosan SA and Telefnica Brasil go up and down completely randomly.

Pair Corralation between Cosan SA and Telefnica Brasil

Assuming the 90 days trading horizon Cosan SA is expected to under-perform the Telefnica Brasil. In addition to that, Cosan SA is 1.49 times more volatile than Telefnica Brasil SA. It trades about -0.04 of its total potential returns per unit of risk. Telefnica Brasil SA is currently generating about 0.06 per unit of volatility. If you would invest  4,700  in Telefnica Brasil SA on December 24, 2024 and sell it today you would earn a total of  273.00  from holding Telefnica Brasil SA or generate 5.81% return on investment over 90 days.

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

Cosan SA  vs.  Telefnica Brasil SA

Cosan SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cosan SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the 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.

Telefnica Brasil

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telefnica Brasil SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Telefnica Brasil may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Cosan SA and Telefnica Brasil

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

The idea behind Cosan SA and Telefnica Brasil 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.