Correlation Between IRB Brasil and Magazine Luiza

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

Diversification Opportunities for IRB Brasil and Magazine Luiza

0.8

Correlation Coefficient

IRB Brasil  Magazine Luiza

Very poor diversification

The 3 months correlation between IRB and Magazine is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding IRB Brasil Resseguros SA and Magazine Luiza SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magazine Luiza 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 Magazine Luiza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magazine Luiza SA has no effect on the direction of IRB Brasil i.e., IRB Brasil and Magazine Luiza go up and down completely randomly.

Pair Corralation between IRB Brasil and Magazine Luiza

Assuming the 90 days trading horizon IRB Brasil Resseguros SA is expected to generate 0.9 times more return on investment than Magazine Luiza. However, IRB Brasil Resseguros SA is 1.12 times less risky than Magazine Luiza. It trades about -0.01 of its potential returns per unit of risk. Magazine Luiza SA is currently generating about -0.07 per unit of risk. If you would invest  5,102  in IRB Brasil Resseguros SA on September 4, 2024 and sell it today you would lose (1,096) from holding IRB Brasil Resseguros SA or give up 21.48% of portfolio value over 90 days.

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

IRB Brasil Resseguros SA  vs.  Magazine Luiza 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.

Magazine Luiza SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magazine Luiza 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.

Pair Trading with IRB Brasil and Magazine Luiza

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

The idea behind IRB Brasil Resseguros SA and Magazine Luiza 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.