Correlation Between Rio Paranapanema and Companhia

Can any of the company-specific risk be diversified away by investing in both Rio Paranapanema and Companhia 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 Companhia 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 Companhia de Gs, you can compare the effects of market volatilities on Rio Paranapanema and Companhia 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 Companhia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rio Paranapanema and Companhia.

Diversification Opportunities for Rio Paranapanema and Companhia

0.58

Correlation Coefficient

Rio Paranapanema  Companhia

Very weak diversification

The 3 months correlation between Rio and Companhia is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Rio Paranapanema Energia and Companhia de Gs in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Gs 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 Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Gs has no effect on the direction of Rio Paranapanema i.e., Rio Paranapanema and Companhia go up and down completely randomly.

Pair Corralation between Rio Paranapanema and Companhia

Assuming the 90 days trading horizon Rio Paranapanema Energia is expected to generate 0.86 times more return on investment than Companhia. However, Rio Paranapanema Energia is 1.16 times less risky than Companhia. It trades about 0.13 of its potential returns per unit of risk. Companhia de Gs is currently generating about 0.05 per unit of risk. If you would invest  2,626  in Rio Paranapanema Energia on September 12, 2024 and sell it today you would earn a total of  474.00  from holding Rio Paranapanema Energia or generate 18.05% return on investment over 90 days.

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

Rio Paranapanema Energia  vs.  Companhia de Gs

Rio Paranapanema Energia

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Paranapanema Energia are ranked lower than 10 (%) 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.

Companhia de Gs

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia de Gs are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Companhia may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Rio Paranapanema and Companhia

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

The idea behind Rio Paranapanema Energia and Companhia de Gs 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.