Correlation Between Magazine Luiza and BMEB4F

Can any of the company-specific risk be diversified away by investing in both Magazine Luiza and BMEB4F 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 Magazine Luiza and BMEB4F into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Magazine Luiza SA and BMEB4F, you can compare the effects of market volatilities on Magazine Luiza and BMEB4F 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 Magazine Luiza with a short position of BMEB4F. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magazine Luiza and BMEB4F.

Diversification Opportunities for Magazine Luiza and BMEB4F

-0.05

Correlation Coefficient

Magazine Luiza  BMEB4F

Good diversification

The 3 months correlation between Magazine and BMEB4F is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Magazine Luiza SA and BMEB4F in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BMEB4F and Magazine Luiza 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 Magazine Luiza SA are associated (or correlated) with BMEB4F. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BMEB4F has no effect on the direction of Magazine Luiza i.e., Magazine Luiza and BMEB4F go up and down completely randomly.

Pair Corralation between Magazine Luiza and BMEB4F

Assuming the 90 days trading horizon Magazine Luiza SA is expected to under-perform the BMEB4F. In addition to that, Magazine Luiza is 1.93 times more volatile than BMEB4F. It trades about -0.13 of its total potential returns per unit of risk. BMEB4F is currently generating about -0.07 per unit of volatility. If you would invest  3,902  in BMEB4F on October 23, 2024 and sell it today you would lose (184.00) from holding BMEB4F or give up 4.72% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	44.83%
Values	Daily Returns

Magazine Luiza SA  vs.  BMEB4F

Magazine Luiza SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magazine Luiza 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.

BMEB4F

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BMEB4F has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Magazine Luiza and BMEB4F

The main advantage of trading using opposite Magazine Luiza and BMEB4F positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magazine Luiza position performs unexpectedly, BMEB4F 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 BMEB4F will offset losses from the drop in BMEB4F's long position.

The idea behind Magazine Luiza SA and BMEB4F 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.