Correlation Between Faria Lima and FDO INV

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

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

Diversification Opportunities for Faria Lima and FDO INV

-0.1

Correlation Coefficient

Faria Lima  FDO INV

Good diversification

The 3 months correlation between Faria and FDO is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding Faria Lima Capital and FDO INV IMOB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FDO INV IMOB and Faria Lima 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 Faria Lima Capital are associated (or correlated) with FDO INV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FDO INV IMOB has no effect on the direction of Faria Lima i.e., Faria Lima and FDO INV go up and down completely randomly.

Pair Corralation between Faria Lima and FDO INV

Assuming the 90 days trading horizon Faria Lima Capital is expected to generate 10.07 times more return on investment than FDO INV. However, Faria Lima is 10.07 times more volatile than FDO INV IMOB. It trades about 0.35 of its potential returns per unit of risk. FDO INV IMOB is currently generating about -0.24 per unit of risk. If you would invest  9,635  in Faria Lima Capital on October 9, 2024 and sell it today you would earn a total of  235.00  from holding Faria Lima Capital or generate 2.44% return on investment over 90 days.

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

Faria Lima Capital  vs.  FDO INV IMOB

Faria Lima Capital

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Faria Lima Capital are ranked lower than 4 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong fundamental indicators, Faria Lima is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

FDO INV IMOB

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FDO INV IMOB are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong basic indicators, FDO INV is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Faria Lima and FDO INV

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

The idea behind Faria Lima Capital and FDO INV IMOB 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 Anywhere module to track or share privately all of your investments from the convenience of any device.