Correlation Between Grendene and Iochpe Maxion

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

By analyzing existing cross correlation between Grendene SA and Iochpe Maxion SA, you can compare the effects of market volatilities on Grendene and Iochpe Maxion 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 Grendene with a short position of Iochpe Maxion. Check out your portfolio center. Please also check ongoing floating volatility patterns of Grendene and Iochpe Maxion.

Diversification Opportunities for Grendene and Iochpe Maxion

0.89

Correlation Coefficient

Grendene  Iochpe Maxion

Very poor diversification

The 3 months correlation between Grendene and Iochpe is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Grendene SA and Iochpe Maxion SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iochpe Maxion SA and Grendene 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 Grendene SA are associated (or correlated) with Iochpe Maxion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iochpe Maxion SA has no effect on the direction of Grendene i.e., Grendene and Iochpe Maxion go up and down completely randomly.

Pair Corralation between Grendene and Iochpe Maxion

Assuming the 90 days trading horizon Grendene is expected to generate 1.1 times less return on investment than Iochpe Maxion. But when comparing it to its historical volatility, Grendene SA is 1.1 times less risky than Iochpe Maxion. It trades about 0.06 of its potential returns per unit of risk. Iochpe Maxion SA is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,183  in Iochpe Maxion SA on December 3, 2024 and sell it today you would earn a total of  91.00  from holding Iochpe Maxion SA or generate 7.69% return on investment over 90 days.

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

Grendene SA  vs.  Iochpe Maxion SA

Grendene SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Grendene SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Grendene may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Iochpe Maxion SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Iochpe Maxion SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Iochpe Maxion may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Grendene and Iochpe Maxion

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

The idea behind Grendene SA and Iochpe Maxion SA 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..