Correlation Between Basic Materials and Pet Center

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

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

Diversification Opportunities for Basic Materials and Pet Center

-0.11

Correlation Coefficient

Basic Materials  Pet Center

Good diversification

The 3 months correlation between Basic and Pet is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Pet Center Comrcio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Pet Center Comrcio 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 Pet Center. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Pet Center Comrcio has no effect on the direction of Basic Materials i.e., Basic Materials and Pet Center go up and down completely randomly.

Pair Corralation between Basic Materials and Pet Center

Assuming the 90 days trading horizon Basic Materials is expected to generate 0.33 times more return on investment than Pet Center. However, Basic Materials is 2.99 times less risky than Pet Center. It trades about 0.11 of its potential returns per unit of risk. Pet Center Comrcio is currently generating about -0.01 per unit of risk. If you would invest  556,424  in Basic Materials on September 12, 2024 and sell it today you would earn a total of  48,047  from holding Basic Materials or generate 8.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Basic Materials  vs.  Pet Center Comrcio

Pair Trading with Basic Materials and Pet Center

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

The idea behind Basic Materials and Pet Center Comrcio 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.