Correlation Between IRB Brasil and Itasa Investimentos

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

Diversification Opportunities for IRB Brasil and Itasa Investimentos

0.71

Correlation Coefficient

IRB Brasil  Itasa Investimentos

Poor diversification

The 3 months correlation between IRB and Itasa is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding IRB Brasil Resseguros SA and Itasa Investimentos in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Itasa Investimentos 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 Itasa Investimentos. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Itasa Investimentos has no effect on the direction of IRB Brasil i.e., IRB Brasil and Itasa Investimentos go up and down completely randomly.

Pair Corralation between IRB Brasil and Itasa Investimentos

Assuming the 90 days trading horizon IRB Brasil Resseguros SA is expected to generate 2.39 times more return on investment than Itasa Investimentos. However, IRB Brasil is 2.39 times more volatile than Itasa Investimentos. It trades about 0.11 of its potential returns per unit of risk. Itasa Investimentos is currently generating about 0.12 per unit of risk. If you would invest  4,335  in IRB Brasil Resseguros SA on December 27, 2024 and sell it today you would earn a total of  927.00  from holding IRB Brasil Resseguros SA or generate 21.38% return on investment over 90 days.

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

IRB Brasil Resseguros SA  vs.  Itasa Investimentos

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.

Itasa Investimentos

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Itasa Investimentos are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Itasa Investimentos may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IRB Brasil and Itasa Investimentos

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

The idea behind IRB Brasil Resseguros SA and Itasa Investimentos 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.