Correlation Between IRB Brasil and Azul SA

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

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

Diversification Opportunities for IRB Brasil and Azul SA

0.25

Correlation Coefficient

IRB Brasil  Azul SA

Modest diversification

The 3 months correlation between IRB and Azul is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding IRB Brasil Resseguros SA and Azul SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Azul SA and IRB Brasil 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 IRB Brasil Resseguros SA are associated (or correlated) with Azul SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Azul SA has no effect on the direction of IRB Brasil i.e., IRB Brasil and Azul SA go up and down completely randomly.

Pair Corralation between IRB Brasil and Azul SA

Assuming the 90 days trading horizon IRB Brasil Resseguros SA is expected to generate 0.98 times more return on investment than Azul SA. However, IRB Brasil Resseguros SA is 1.02 times less risky than Azul SA. It trades about 0.11 of its potential returns per unit of risk. Azul SA is currently generating about 0.01 per unit of risk. If you would invest  4,245  in IRB Brasil Resseguros SA on December 29, 2024 and sell it today you would earn a total of  976.00  from holding IRB Brasil Resseguros SA or generate 22.99% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

IRB Brasil Resseguros SA  vs.  Azul SA

IRB Brasil Resseguros

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in IRB Brasil Resseguros SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, IRB Brasil unveiled solid returns over the last few months and may actually be approaching a breakup point.

Azul SA

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IRB Brasil and Azul SA

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

The idea behind IRB Brasil Resseguros SA and Azul 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.