Correlation Between Companhia and Banco BTG

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

By analyzing existing cross correlation between Companhia de Saneamento and Banco BTG Pactual, you can compare the effects of market volatilities on Companhia and Banco BTG 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 Banco BTG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Companhia and Banco BTG.

Diversification Opportunities for Companhia and Banco BTG

0.62

Correlation Coefficient

Companhia  Banco BTG

Poor diversification

The 3 months correlation between Companhia and Banco is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento and Banco BTG Pactual in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco BTG Pactual 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 Saneamento are associated (or correlated) with Banco BTG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco BTG Pactual has no effect on the direction of Companhia i.e., Companhia and Banco BTG go up and down completely randomly.

Pair Corralation between Companhia and Banco BTG

Assuming the 90 days trading horizon Companhia de Saneamento is expected to under-perform the Banco BTG. But the stock apears to be less risky and, when comparing its historical volatility, Companhia de Saneamento is 1.04 times less risky than Banco BTG. The stock trades about -0.04 of its potential returns per unit of risk. The Banco BTG Pactual is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,952  in Banco BTG Pactual on December 2, 2024 and sell it today you would earn a total of  206.00  from holding Banco BTG Pactual or generate 6.98% return on investment over 90 days.

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

Companhia de Saneamento  vs.  Banco BTG Pactual

Companhia de Saneamento

Risk-Adjusted Performance

Very Weak

Over the last 90 days Companhia de Saneamento has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Banco BTG Pactual

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Banco BTG Pactual are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Banco BTG may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Companhia and Banco BTG

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

The idea behind Companhia de Saneamento and Banco BTG Pactual 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.