Correlation Between Eni SPA and Ultrapar Participacoes

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

By analyzing existing cross correlation between Eni SpA ADR and Ultrapar Participacoes SA, you can compare the effects of market volatilities on Eni SPA and Ultrapar Participacoes 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 Eni SPA with a short position of Ultrapar Participacoes. Check out your portfolio center. Please also check ongoing floating volatility patterns of Eni SPA and Ultrapar Participacoes.

Diversification Opportunities for Eni SPA and Ultrapar Participacoes

0.78

Correlation Coefficient

Eni SPA  Ultrapar Participacoes

Poor diversification

The 3 months correlation between Eni and Ultrapar is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Eni SpA ADR and Ultrapar Participacoes SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrapar Participacoes and Eni SPA 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 Eni SpA ADR are associated (or correlated) with Ultrapar Participacoes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrapar Participacoes has no effect on the direction of Eni SPA i.e., Eni SPA and Ultrapar Participacoes go up and down completely randomly.

Pair Corralation between Eni SPA and Ultrapar Participacoes

Taking into account the 90-day investment horizon Eni SPA is expected to generate 1.42 times less return on investment than Ultrapar Participacoes. But when comparing it to its historical volatility, Eni SpA ADR is 2.53 times less risky than Ultrapar Participacoes. It trades about 0.25 of its potential returns per unit of risk. Ultrapar Participacoes SA is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  259.00  in Ultrapar Participacoes SA on December 27, 2024 and sell it today you would earn a total of  58.00  from holding Ultrapar Participacoes SA or generate 22.39% return on investment over 90 days.

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

Eni SpA ADR  vs.  Ultrapar Participacoes SA

Eni SpA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Eni SpA ADR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Eni SPA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Ultrapar Participacoes

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Ultrapar Participacoes SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain technical and fundamental indicators, Ultrapar Participacoes reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Eni SPA and Ultrapar Participacoes

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

The idea behind Eni SpA ADR and Ultrapar Participacoes 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.