Correlation Between Companhia Paranaense and Otter Tail

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

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

Diversification Opportunities for Companhia Paranaense and Otter Tail

-0.08

Correlation Coefficient

Companhia Paranaense  Otter Tail

Good diversification

The 3 months correlation between Companhia and Otter is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Companhia Paranaense de and Otter Tail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Otter Tail and Companhia Paranaense 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 Paranaense de are associated (or correlated) with Otter Tail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Otter Tail has no effect on the direction of Companhia Paranaense i.e., Companhia Paranaense and Otter Tail go up and down completely randomly.

Pair Corralation between Companhia Paranaense and Otter Tail

Considering the 90-day investment horizon Companhia Paranaense de is expected to under-perform the Otter Tail. In addition to that, Companhia Paranaense is 1.21 times more volatile than Otter Tail. It trades about -0.07 of its total potential returns per unit of risk. Otter Tail is currently generating about -0.04 per unit of volatility. If you would invest  8,405  in Otter Tail on August 30, 2024 and sell it today you would lose (382.00) from holding Otter Tail or give up 4.54% of portfolio value over 90 days.

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

Companhia Paranaense de  vs.  Otter Tail

Companhia Paranaense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Paranaense de has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest conflicting performance, the Stock's essential indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Otter Tail

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Otter Tail has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Otter Tail is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Companhia Paranaense and Otter Tail

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

The idea behind Companhia Paranaense de and Otter Tail 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.