Correlation Between M Dias and GAEC Educacao

Can any of the company-specific risk be diversified away by investing in both M Dias and GAEC Educacao 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 M Dias and GAEC Educacao into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between M Dias Branco and GAEC Educacao SA, you can compare the effects of market volatilities on M Dias and GAEC Educacao 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 M Dias with a short position of GAEC Educacao. Check out your portfolio center. Please also check ongoing floating volatility patterns of M Dias and GAEC Educacao.

Diversification Opportunities for M Dias and GAEC Educacao

0.85

Correlation Coefficient

M Dias  GAEC Educacao

Very poor diversification

The 3 months correlation between MDIA3 and GAEC is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding M Dias Branco and GAEC Educacao SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GAEC Educacao SA and M Dias 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 M Dias Branco are associated (or correlated) with GAEC Educacao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GAEC Educacao SA has no effect on the direction of M Dias i.e., M Dias and GAEC Educacao go up and down completely randomly.

Pair Corralation between M Dias and GAEC Educacao

Assuming the 90 days trading horizon M Dias Branco is expected to under-perform the GAEC Educacao. But the stock apears to be less risky and, when comparing its historical volatility, M Dias Branco is 2.34 times less risky than GAEC Educacao. The stock trades about -0.08 of its potential returns per unit of risk. The GAEC Educacao SA is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  340.00  in GAEC Educacao SA on October 3, 2024 and sell it today you would lose (182.00) from holding GAEC Educacao SA or give up 53.53% of portfolio value over 90 days.

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

M Dias Branco  vs.  GAEC Educacao SA

M Dias Branco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days M Dias Branco 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 February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

GAEC Educacao SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GAEC Educacao 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 February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with M Dias and GAEC Educacao

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

The idea behind M Dias Branco and GAEC Educacao 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.