Correlation Between Light SA and Companhia Paranaense

Can any of the company-specific risk be diversified away by investing in both Light SA and Companhia Paranaense 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 Light SA and Companhia Paranaense into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Light SA and Companhia Paranaense de, you can compare the effects of market volatilities on Light SA and Companhia Paranaense 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 Light SA with a short position of Companhia Paranaense. Check out your portfolio center. Please also check ongoing floating volatility patterns of Light SA and Companhia Paranaense.

Diversification Opportunities for Light SA and Companhia Paranaense

0.9

Correlation Coefficient

Light SA  Companhia Paranaense

Almost no diversification

The 3 months correlation between Light and Companhia is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Light SA and Companhia Paranaense de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Paranaense and Light SA 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 Light SA are associated (or correlated) with Companhia Paranaense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Paranaense has no effect on the direction of Light SA i.e., Light SA and Companhia Paranaense go up and down completely randomly.

Pair Corralation between Light SA and Companhia Paranaense

Assuming the 90 days trading horizon Light SA is expected to under-perform the Companhia Paranaense. In addition to that, Light SA is 1.32 times more volatile than Companhia Paranaense de. It trades about -0.16 of its total potential returns per unit of risk. Companhia Paranaense de is currently generating about 0.18 per unit of volatility. If you would invest  817.00  in Companhia Paranaense de on September 14, 2024 and sell it today you would earn a total of  61.00  from holding Companhia Paranaense de or generate 7.47% return on investment over 90 days.

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

Light SA  vs.  Companhia Paranaense de

Light SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Light 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.

Companhia Paranaense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Paranaense de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Companhia Paranaense is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Light SA and Companhia Paranaense

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

The idea behind Light SA and Companhia Paranaense de 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.