Correlation Between Luz Del and Nexa Resources

Can any of the company-specific risk be diversified away by investing in both Luz Del and Nexa Resources 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 Luz Del and Nexa Resources into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Luz del Sur and Nexa Resources Peru, you can compare the effects of market volatilities on Luz Del and Nexa Resources 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 Luz Del with a short position of Nexa Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Luz Del and Nexa Resources.

Diversification Opportunities for Luz Del and Nexa Resources

0.02

Correlation Coefficient

Luz Del  Nexa Resources

Significant diversification

The 3 months correlation between Luz and Nexa is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Luz del Sur and Nexa Resources Peru in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nexa Resources Peru and Luz Del 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 Luz del Sur are associated (or correlated) with Nexa Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nexa Resources Peru has no effect on the direction of Luz Del i.e., Luz Del and Nexa Resources go up and down completely randomly.

Pair Corralation between Luz Del and Nexa Resources

Assuming the 90 days trading horizon Luz del Sur is expected to generate 0.46 times more return on investment than Nexa Resources. However, Luz del Sur is 2.17 times less risky than Nexa Resources. It trades about 0.01 of its potential returns per unit of risk. Nexa Resources Peru is currently generating about -0.03 per unit of risk. If you would invest  1,550  in Luz del Sur on October 11, 2024 and sell it today you would earn a total of  0.00  from holding Luz del Sur or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	68.15%
Values	Daily Returns

Luz del Sur  vs.  Nexa Resources Peru

Luz del Sur

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Luz del Sur has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Luz Del is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Nexa Resources Peru

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nexa Resources Peru has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's technical and fundamental indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Luz Del and Nexa Resources

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

The idea behind Luz del Sur and Nexa Resources Peru 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.