Correlation Between Basic Materials and Elektro Redes

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

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

Diversification Opportunities for Basic Materials and Elektro Redes

0.04

Correlation Coefficient

Basic Materials  Elektro Redes

Significant diversification

The 3 months correlation between Basic and Elektro is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Elektro Redes SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elektro Redes SA and Basic Materials 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 Basic Materials are associated (or correlated) with Elektro Redes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elektro Redes SA has no effect on the direction of Basic Materials i.e., Basic Materials and Elektro Redes go up and down completely randomly.

Pair Corralation between Basic Materials and Elektro Redes

Assuming the 90 days trading horizon Basic Materials is expected to under-perform the Elektro Redes. But the index apears to be less risky and, when comparing its historical volatility, Basic Materials is 3.2 times less risky than Elektro Redes. The index trades about -0.08 of its potential returns per unit of risk. The Elektro Redes SA is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  4,509  in Elektro Redes SA on September 27, 2024 and sell it today you would earn a total of  591.00  from holding Elektro Redes SA or generate 13.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Basic Materials  vs.  Elektro Redes SA

Pair Trading with Basic Materials and Elektro Redes

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

The idea behind Basic Materials and Elektro Redes 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.