Correlation Between HomeToGo and Transportadora

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

By analyzing existing cross correlation between HomeToGo SE and Transportadora de Gas, you can compare the effects of market volatilities on HomeToGo and Transportadora 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 HomeToGo with a short position of Transportadora. Check out your portfolio center. Please also check ongoing floating volatility patterns of HomeToGo and Transportadora.

Diversification Opportunities for HomeToGo and Transportadora

-0.29

Correlation Coefficient

HomeToGo  Transportadora

Very good diversification

The 3 months correlation between HomeToGo and Transportadora is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding HomeToGo SE and Transportadora de Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transportadora de Gas and HomeToGo 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 HomeToGo SE are associated (or correlated) with Transportadora. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transportadora de Gas has no effect on the direction of HomeToGo i.e., HomeToGo and Transportadora go up and down completely randomly.

Pair Corralation between HomeToGo and Transportadora

Assuming the 90 days trading horizon HomeToGo SE is expected to under-perform the Transportadora. But the stock apears to be less risky and, when comparing its historical volatility, HomeToGo SE is 1.38 times less risky than Transportadora. The stock trades about -0.01 of its potential returns per unit of risk. The Transportadora de Gas is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,040  in Transportadora de Gas on November 19, 2024 and sell it today you would earn a total of  1,460  from holding Transportadora de Gas or generate 140.38% return on investment over 90 days.

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

HomeToGo SE  vs.  Transportadora de Gas

HomeToGo SE

Risk-Adjusted Performance

Very Weak

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

Transportadora de Gas

Risk-Adjusted Performance

Very Weak

Over the last 90 days Transportadora de Gas has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking signals, Transportadora is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with HomeToGo and Transportadora

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

The idea behind HomeToGo SE and Transportadora de Gas 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.