Correlation Between LESTE FDO and Iochpe Maxion

Can any of the company-specific risk be diversified away by investing in both LESTE FDO and Iochpe Maxion 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 LESTE FDO and Iochpe Maxion into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between LESTE FDO INV and Iochpe Maxion SA, you can compare the effects of market volatilities on LESTE FDO and Iochpe Maxion 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 LESTE FDO with a short position of Iochpe Maxion. Check out your portfolio center. Please also check ongoing floating volatility patterns of LESTE FDO and Iochpe Maxion.

Diversification Opportunities for LESTE FDO and Iochpe Maxion

-0.35

Correlation Coefficient

LESTE FDO  Iochpe Maxion

Very good diversification

The 3 months correlation between LESTE and Iochpe is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding LESTE FDO INV and Iochpe Maxion SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iochpe Maxion SA and LESTE FDO 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 LESTE FDO INV are associated (or correlated) with Iochpe Maxion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iochpe Maxion SA has no effect on the direction of LESTE FDO i.e., LESTE FDO and Iochpe Maxion go up and down completely randomly.

Pair Corralation between LESTE FDO and Iochpe Maxion

Assuming the 90 days trading horizon LESTE FDO is expected to generate 1.52 times less return on investment than Iochpe Maxion. But when comparing it to its historical volatility, LESTE FDO INV is 1.62 times less risky than Iochpe Maxion. It trades about 0.01 of its potential returns per unit of risk. Iochpe Maxion SA is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,273  in Iochpe Maxion SA on December 5, 2024 and sell it today you would earn a total of  1.00  from holding Iochpe Maxion SA or generate 0.08% return on investment over 90 days.

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

LESTE FDO INV  vs.  Iochpe Maxion SA

LESTE FDO INV

Risk-Adjusted Performance

Very Weak

Over the last 90 days LESTE FDO INV has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, LESTE FDO is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Iochpe Maxion SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Iochpe Maxion SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Iochpe Maxion 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 LESTE FDO and Iochpe Maxion

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

The idea behind LESTE FDO INV and Iochpe Maxion 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.