Correlation Between Loft II and Fator Verit

Can any of the company-specific risk be diversified away by investing in both Loft II and Fator Verit 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 Loft II and Fator Verit into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Loft II Fundo and Fator Verit Fundo, you can compare the effects of market volatilities on Loft II and Fator Verit 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 Loft II with a short position of Fator Verit. Check out your portfolio center. Please also check ongoing floating volatility patterns of Loft II and Fator Verit.

Diversification Opportunities for Loft II and Fator Verit

-0.23

Correlation Coefficient

Loft II  Fator Verit

Very good diversification

The 3 months correlation between Loft and Fator is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Loft II Fundo and Fator Verit Fundo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fator Verit Fundo and Loft II 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 Loft II Fundo are associated (or correlated) with Fator Verit. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fator Verit Fundo has no effect on the direction of Loft II i.e., Loft II and Fator Verit go up and down completely randomly.

Pair Corralation between Loft II and Fator Verit

Assuming the 90 days trading horizon Loft II Fundo is expected to generate 5.46 times more return on investment than Fator Verit. However, Loft II is 5.46 times more volatile than Fator Verit Fundo. It trades about 0.04 of its potential returns per unit of risk. Fator Verit Fundo is currently generating about 0.1 per unit of risk. If you would invest  722.00  in Loft II Fundo on December 24, 2024 and sell it today you would earn a total of  22.00  from holding Loft II Fundo or generate 3.05% return on investment over 90 days.

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

Loft II Fundo  vs.  Fator Verit Fundo

Loft II Fundo

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Loft II Fundo are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat weak basic indicators, Loft II sustained solid returns over the last few months and may actually be approaching a breakup point.

Fator Verit Fundo

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fator Verit Fundo are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat weak basic indicators, Fator Verit may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Loft II and Fator Verit

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

The idea behind Loft II Fundo and Fator Verit Fundo 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.