Correlation Between Cia De and Eucatex SA

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

By analyzing existing cross correlation between Cia de Ferro and Eucatex SA Indstria, you can compare the effects of market volatilities on Cia De and Eucatex SA 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 Cia De with a short position of Eucatex SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cia De and Eucatex SA.

Diversification Opportunities for Cia De and Eucatex SA

0.34

Correlation Coefficient

Cia De  Eucatex SA

Weak diversification

The 3 months correlation between Cia and Eucatex is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding Cia de Ferro and Eucatex SA Indstria in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eucatex SA Indstria and Cia De 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 Cia de Ferro are associated (or correlated) with Eucatex SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eucatex SA Indstria has no effect on the direction of Cia De i.e., Cia De and Eucatex SA go up and down completely randomly.

Pair Corralation between Cia De and Eucatex SA

Assuming the 90 days trading horizon Cia de Ferro is expected to under-perform the Eucatex SA. But the preferred stock apears to be less risky and, when comparing its historical volatility, Cia de Ferro is 1.26 times less risky than Eucatex SA. The preferred stock trades about -0.09 of its potential returns per unit of risk. The Eucatex SA Indstria is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,316  in Eucatex SA Indstria on December 30, 2024 and sell it today you would lose (86.00) from holding Eucatex SA Indstria or give up 6.53% of portfolio value over 90 days.

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

Cia de Ferro  vs.  Eucatex SA Indstria

Cia de Ferro

Risk-Adjusted Performance

Very Weak

Over the last 90 days Cia de Ferro has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Preferred Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Eucatex SA Indstria

Risk-Adjusted Performance

Very Weak

Over the last 90 days Eucatex SA Indstria has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Eucatex SA is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cia De and Eucatex SA

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

The idea behind Cia de Ferro and Eucatex SA Indstria 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.