Correlation Between Magazine Luiza and Fortinet

Can any of the company-specific risk be diversified away by investing in both Magazine Luiza and Fortinet 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 Fortinet 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 Fortinet, you can compare the effects of market volatilities on Magazine Luiza and Fortinet 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 Fortinet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Magazine Luiza and Fortinet.

Diversification Opportunities for Magazine Luiza and Fortinet

-0.62

Correlation Coefficient

Magazine Luiza  Fortinet

Excellent diversification

The 3 months correlation between Magazine and Fortinet is -0.62. Overlapping area represents the amount of risk that can be diversified away by holding Magazine Luiza SA and Fortinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortinet 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 Fortinet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortinet has no effect on the direction of Magazine Luiza i.e., Magazine Luiza and Fortinet go up and down completely randomly.

Pair Corralation between Magazine Luiza and Fortinet

Assuming the 90 days trading horizon Magazine Luiza SA is expected to under-perform the Fortinet. In addition to that, Magazine Luiza is 1.53 times more volatile than Fortinet. It trades about -0.25 of its total potential returns per unit of risk. Fortinet is currently generating about 0.28 per unit of volatility. If you would invest  23,034  in Fortinet on October 7, 2024 and sell it today you would earn a total of  7,386  from holding Fortinet or generate 32.07% return on investment over 90 days.

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

Magazine Luiza SA  vs.  Fortinet

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.

Fortinet

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fortinet are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Fortinet sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Magazine Luiza and Fortinet

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

The idea behind Magazine Luiza SA and Fortinet 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.