Correlation Between Enterprise Financial and Itau Unibanco

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

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

Diversification Opportunities for Enterprise Financial and Itau Unibanco

0.21

Correlation Coefficient

Enterprise Financial  Itau Unibanco

Modest diversification

The 3 months correlation between Enterprise and Itau is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Enterprise Financial Services and Itau Unibanco Banco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itau Unibanco Banco and Enterprise Financial 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 Enterprise Financial Services are associated (or correlated) with Itau Unibanco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itau Unibanco Banco has no effect on the direction of Enterprise Financial i.e., Enterprise Financial and Itau Unibanco go up and down completely randomly.

Pair Corralation between Enterprise Financial and Itau Unibanco

Given the investment horizon of 90 days Enterprise Financial Services is expected to under-perform the Itau Unibanco. But the stock apears to be less risky and, when comparing its historical volatility, Enterprise Financial Services is 1.04 times less risky than Itau Unibanco. The stock trades about -0.01 of its potential returns per unit of risk. The Itau Unibanco Banco is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  426.00  in Itau Unibanco Banco on December 29, 2024 and sell it today you would earn a total of  134.00  from holding Itau Unibanco Banco or generate 31.46% return on investment over 90 days.

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

Enterprise Financial Services  vs.  Itau Unibanco Banco

Enterprise Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Enterprise Financial Services has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Enterprise Financial is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Itau Unibanco Banco

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Itau Unibanco Banco are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting basic indicators, Itau Unibanco sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Enterprise Financial and Itau Unibanco

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

The idea behind Enterprise Financial Services and Itau Unibanco Banco 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.