Correlation Between Basic Materials and Minupar Participaes

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

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

Diversification Opportunities for Basic Materials and Minupar Participaes

0.07

Correlation Coefficient

Basic Materials  Minupar Participaes

Significant diversification

The 3 months correlation between Basic and Minupar is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Minupar Participaes SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Minupar Participaes 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 Minupar Participaes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Minupar Participaes has no effect on the direction of Basic Materials i.e., Basic Materials and Minupar Participaes go up and down completely randomly.

Pair Corralation between Basic Materials and Minupar Participaes

Assuming the 90 days trading horizon Basic Materials is expected to under-perform the Minupar Participaes. But the index apears to be less risky and, when comparing its historical volatility, Basic Materials is 3.22 times less risky than Minupar Participaes. The index trades about -0.01 of its potential returns per unit of risk. The Minupar Participaes SA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  602.00  in Minupar Participaes SA on September 29, 2024 and sell it today you would earn a total of  1,498  from holding Minupar Participaes SA or generate 248.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.2%
Values	Daily Returns

Basic Materials  vs.  Minupar Participaes SA

Pair Trading with Basic Materials and Minupar Participaes

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

The idea behind Basic Materials and Minupar Participaes 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.