Correlation Between Basic Materials and Patria Investments

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

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

Diversification Opportunities for Basic Materials and Patria Investments

0.16

Correlation Coefficient

Basic Materials  Patria Investments

Average diversification

The 3 months correlation between Basic and Patria is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Patria Investments Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Patria Investments 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 Patria Investments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Patria Investments has no effect on the direction of Basic Materials i.e., Basic Materials and Patria Investments go up and down completely randomly.

Pair Corralation between Basic Materials and Patria Investments

Assuming the 90 days trading horizon Basic Materials is expected to under-perform the Patria Investments. But the index apears to be less risky and, when comparing its historical volatility, Basic Materials is 1.3 times less risky than Patria Investments. The index trades about -0.03 of its potential returns per unit of risk. The Patria Investments Limited is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,256  in Patria Investments Limited on October 23, 2024 and sell it today you would earn a total of  225.00  from holding Patria Investments Limited or generate 6.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.31%
Values	Daily Returns

Basic Materials  vs.  Patria Investments Limited

Pair Trading with Basic Materials and Patria Investments

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

The idea behind Basic Materials and Patria Investments Limited 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.