Correlation Between PDG Realty and Paranapanema

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

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

Diversification Opportunities for PDG Realty and Paranapanema

0.06

Correlation Coefficient

PDG Realty  Paranapanema

Significant diversification

The 3 months correlation between PDG and Paranapanema is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding PDG Realty SA and Paranapanema SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Paranapanema SA and PDG Realty 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 PDG Realty SA are associated (or correlated) with Paranapanema. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Paranapanema SA has no effect on the direction of PDG Realty i.e., PDG Realty and Paranapanema go up and down completely randomly.

Pair Corralation between PDG Realty and Paranapanema

Assuming the 90 days trading horizon PDG Realty SA is expected to under-perform the Paranapanema. In addition to that, PDG Realty is 3.24 times more volatile than Paranapanema SA. It trades about -0.09 of its total potential returns per unit of risk. Paranapanema SA is currently generating about -0.06 per unit of volatility. If you would invest  493.00  in Paranapanema SA on December 2, 2024 and sell it today you would lose (386.00) from holding Paranapanema SA or give up 78.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

PDG Realty SA  vs.  Paranapanema SA

PDG Realty SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days PDG Realty SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively uncertain basic indicators, PDG Realty may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Paranapanema SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Paranapanema SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Paranapanema unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PDG Realty and Paranapanema

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

The idea behind PDG Realty SA and Paranapanema 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.

Check out your portfolio center.

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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.