Correlation Between IRB Brasil and Cogna Educao

Can any of the company-specific risk be diversified away by investing in both IRB Brasil and Cogna Educao 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 Cogna Educao 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 Cogna Educao SA, you can compare the effects of market volatilities on IRB Brasil and Cogna Educao 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 Cogna Educao. Check out your portfolio center. Please also check ongoing floating volatility patterns of IRB Brasil and Cogna Educao.

Diversification Opportunities for IRB Brasil and Cogna Educao

0.24

Correlation Coefficient

IRB Brasil  Cogna Educao

Modest diversification

The 3 months correlation between IRB and Cogna is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding IRB Brasil Resseguros SA and Cogna Educao SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogna Educao 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 Cogna Educao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogna Educao SA has no effect on the direction of IRB Brasil i.e., IRB Brasil and Cogna Educao go up and down completely randomly.

Pair Corralation between IRB Brasil and Cogna Educao

Assuming the 90 days trading horizon IRB Brasil Resseguros SA is expected to generate 1.05 times more return on investment than Cogna Educao. However, IRB Brasil is 1.05 times more volatile than Cogna Educao SA. It trades about 0.0 of its potential returns per unit of risk. Cogna Educao SA is currently generating about -0.07 per unit of risk. If you would invest  4,833  in IRB Brasil Resseguros SA on September 12, 2024 and sell it today you would lose (807.00) from holding IRB Brasil Resseguros SA or give up 16.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.72%
Values	Daily Returns

IRB Brasil Resseguros SA  vs.  Cogna Educao SA

IRB Brasil Resseguros

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IRB Brasil Resseguros SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Cogna Educao SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Cogna Educao SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with IRB Brasil and Cogna Educao

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

The idea behind IRB Brasil Resseguros SA and Cogna Educao 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 Anywhere module to track or share privately all of your investments from the convenience of any device.