Correlation Between Itay Financial and Libra Insurance

Can any of the company-specific risk be diversified away by investing in both Itay Financial and Libra Insurance 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 Itay Financial and Libra Insurance into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Itay Financial AA and Libra Insurance, you can compare the effects of market volatilities on Itay Financial and Libra Insurance 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 Itay Financial with a short position of Libra Insurance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Itay Financial and Libra Insurance.

Diversification Opportunities for Itay Financial and Libra Insurance

0.63

Correlation Coefficient

Itay Financial  Libra Insurance

Poor diversification

The 3 months correlation between Itay and Libra is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Itay Financial AA and Libra Insurance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Libra Insurance and Itay Financial 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 Itay Financial AA are associated (or correlated) with Libra Insurance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Libra Insurance has no effect on the direction of Itay Financial i.e., Itay Financial and Libra Insurance go up and down completely randomly.

Pair Corralation between Itay Financial and Libra Insurance

Assuming the 90 days trading horizon Itay Financial AA is expected to generate 5.55 times more return on investment than Libra Insurance. However, Itay Financial is 5.55 times more volatile than Libra Insurance. It trades about 0.16 of its potential returns per unit of risk. Libra Insurance is currently generating about 0.11 per unit of risk. If you would invest  32,780  in Itay Financial AA on December 3, 2024 and sell it today you would earn a total of  35,450  from holding Itay Financial AA or generate 108.15% return on investment over 90 days.

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

Itay Financial AA  vs.  Libra Insurance

Itay Financial AA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Itay Financial AA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Itay Financial sustained solid returns over the last few months and may actually be approaching a breakup point.

Libra Insurance

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Libra Insurance are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Libra Insurance sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Itay Financial and Libra Insurance

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

The idea behind Itay Financial AA and Libra Insurance 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.