Correlation Between Dlocal and StoneCo

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

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

Diversification Opportunities for Dlocal and StoneCo

-0.38

Correlation Coefficient

Dlocal  StoneCo

Very good diversification

The 3 months correlation between Dlocal and StoneCo is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Dlocal and StoneCo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on StoneCo and Dlocal 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 Dlocal are associated (or correlated) with StoneCo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of StoneCo has no effect on the direction of Dlocal i.e., Dlocal and StoneCo go up and down completely randomly.

Pair Corralation between Dlocal and StoneCo

Considering the 90-day investment horizon Dlocal is expected to generate 0.59 times more return on investment than StoneCo. However, Dlocal is 1.68 times less risky than StoneCo. It trades about 0.19 of its potential returns per unit of risk. StoneCo is currently generating about 0.04 per unit of risk. If you would invest  1,080  in Dlocal on November 19, 2024 and sell it today you would earn a total of  259.00  from holding Dlocal or generate 23.98% return on investment over 90 days.

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

Dlocal  vs.  StoneCo

Dlocal

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Dlocal are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady essential indicators, Dlocal displayed solid returns over the last few months and may actually be approaching a breakup point.

StoneCo

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in StoneCo are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, StoneCo may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Dlocal and StoneCo

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

The idea behind Dlocal and StoneCo 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.