Correlation Between Rio Paranapanema and Empresa Metropolitana

Can any of the company-specific risk be diversified away by investing in both Rio Paranapanema and Empresa Metropolitana 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 Rio Paranapanema and Empresa Metropolitana into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Rio Paranapanema Energia and Empresa Metropolitana de, you can compare the effects of market volatilities on Rio Paranapanema and Empresa Metropolitana 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 Rio Paranapanema with a short position of Empresa Metropolitana. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Paranapanema and Empresa Metropolitana.

Diversification Opportunities for Rio Paranapanema and Empresa Metropolitana

-0.08

Correlation Coefficient

Rio Paranapanema  Empresa Metropolitana

Good diversification

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

Pair Corralation between Rio Paranapanema and Empresa Metropolitana

Assuming the 90 days trading horizon Rio Paranapanema Energia is expected to generate 1.14 times more return on investment than Empresa Metropolitana. However, Rio Paranapanema is 1.14 times more volatile than Empresa Metropolitana de. It trades about 0.07 of its potential returns per unit of risk. Empresa Metropolitana de is currently generating about -0.04 per unit of risk. If you would invest  2,900  in Rio Paranapanema Energia on December 28, 2024 and sell it today you would earn a total of  300.00  from holding Rio Paranapanema Energia or generate 10.34% return on investment over 90 days.

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

Rio Paranapanema Energia  vs.  Empresa Metropolitana de

Rio Paranapanema Energia

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Paranapanema Energia are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rio Paranapanema unveiled solid returns over the last few months and may actually be approaching a breakup point.

Empresa Metropolitana

Risk-Adjusted Performance

Very Weak

Over the last 90 days Empresa Metropolitana de 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.

Pair Trading with Rio Paranapanema and Empresa Metropolitana

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

The idea behind Rio Paranapanema Energia and Empresa Metropolitana de 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.