Correlation Between Petrolimex Information and IDJ FINANCIAL

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

By analyzing existing cross correlation between Petrolimex Information Technology and IDJ FINANCIAL, you can compare the effects of market volatilities on Petrolimex Information and IDJ FINANCIAL 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 Petrolimex Information with a short position of IDJ FINANCIAL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Petrolimex Information and IDJ FINANCIAL.

Diversification Opportunities for Petrolimex Information and IDJ FINANCIAL

0.75

Correlation Coefficient

Petrolimex Information  IDJ FINANCIAL

Poor diversification

The 3 months correlation between Petrolimex and IDJ is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Petrolimex Information Technol and IDJ FINANCIAL in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IDJ FINANCIAL and Petrolimex Information 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 Petrolimex Information Technology are associated (or correlated) with IDJ FINANCIAL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IDJ FINANCIAL has no effect on the direction of Petrolimex Information i.e., Petrolimex Information and IDJ FINANCIAL go up and down completely randomly.

Pair Corralation between Petrolimex Information and IDJ FINANCIAL

Assuming the 90 days trading horizon Petrolimex Information Technology is expected to under-perform the IDJ FINANCIAL. In addition to that, Petrolimex Information is 1.4 times more volatile than IDJ FINANCIAL. It trades about -0.06 of its total potential returns per unit of risk. IDJ FINANCIAL is currently generating about -0.03 per unit of volatility. If you would invest  640,000  in IDJ FINANCIAL on September 16, 2024 and sell it today you would lose (30,000) from holding IDJ FINANCIAL or give up 4.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	72.31%
Values	Daily Returns

Petrolimex Information Technol  vs.  IDJ FINANCIAL

Petrolimex Information

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Petrolimex Information Technology has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

IDJ FINANCIAL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IDJ FINANCIAL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward-looking indicators, IDJ FINANCIAL is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Petrolimex Information and IDJ FINANCIAL

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

The idea behind Petrolimex Information Technology and IDJ FINANCIAL 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.