Correlation Between Iochpe Maxion and Banco ABC

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

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

Diversification Opportunities for Iochpe Maxion and Banco ABC

0.42

Correlation Coefficient

Iochpe Maxion  Banco ABC

Very weak diversification

The 3 months correlation between Iochpe and Banco is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Iochpe Maxion SA and Banco ABC Brasil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco ABC Brasil and Iochpe Maxion 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 Iochpe Maxion SA are associated (or correlated) with Banco ABC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco ABC Brasil has no effect on the direction of Iochpe Maxion i.e., Iochpe Maxion and Banco ABC go up and down completely randomly.

Pair Corralation between Iochpe Maxion and Banco ABC

Assuming the 90 days trading horizon Iochpe Maxion is expected to generate 1.14 times less return on investment than Banco ABC. In addition to that, Iochpe Maxion is 1.4 times more volatile than Banco ABC Brasil. It trades about 0.05 of its total potential returns per unit of risk. Banco ABC Brasil is currently generating about 0.08 per unit of volatility. If you would invest  1,931  in Banco ABC Brasil on December 30, 2024 and sell it today you would earn a total of  146.00  from holding Banco ABC Brasil or generate 7.56% return on investment over 90 days.

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

Iochpe Maxion SA  vs.  Banco ABC Brasil

Iochpe Maxion SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Iochpe Maxion SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Iochpe Maxion may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Banco ABC Brasil

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Banco ABC Brasil are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Banco ABC may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Iochpe Maxion and Banco ABC

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

The idea behind Iochpe Maxion SA and Banco ABC Brasil 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 Stocks Directory module to find actively traded stocks across global markets.