Correlation Between NatWest Group and Porto Seguro

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

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

Diversification Opportunities for NatWest Group and Porto Seguro

0.34

Correlation Coefficient

NatWest Group  Porto Seguro

Weak diversification

The 3 months correlation between NatWest and Porto is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding NatWest Group plc and Porto Seguro SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Porto Seguro SA and NatWest Group 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 NatWest Group plc are associated (or correlated) with Porto Seguro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Porto Seguro SA has no effect on the direction of NatWest Group i.e., NatWest Group and Porto Seguro go up and down completely randomly.

Pair Corralation between NatWest Group and Porto Seguro

Assuming the 90 days trading horizon NatWest Group plc is expected to under-perform the Porto Seguro. In addition to that, NatWest Group is 1.15 times more volatile than Porto Seguro SA. It trades about -0.33 of its total potential returns per unit of risk. Porto Seguro SA is currently generating about -0.12 per unit of volatility. If you would invest  3,781  in Porto Seguro SA on October 15, 2024 and sell it today you would lose (139.00) from holding Porto Seguro SA or give up 3.68% of portfolio value over 90 days.

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

NatWest Group plc  vs.  Porto Seguro SA

NatWest Group plc

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NatWest Group plc are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, NatWest Group may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Porto Seguro SA

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Porto Seguro SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Porto Seguro is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with NatWest Group and Porto Seguro

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

The idea behind NatWest Group plc and Porto Seguro 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.