Correlation Between Paranapanema and Lupatech

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

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

Diversification Opportunities for Paranapanema and Lupatech

0.3

Correlation Coefficient

Paranapanema  Lupatech

Weak diversification

The 3 months correlation between Paranapanema and Lupatech is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Paranapanema SA and Lupatech SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lupatech SA and Paranapanema 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 Paranapanema SA are associated (or correlated) with Lupatech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lupatech SA has no effect on the direction of Paranapanema i.e., Paranapanema and Lupatech go up and down completely randomly.

Pair Corralation between Paranapanema and Lupatech

Assuming the 90 days trading horizon Paranapanema SA is expected to under-perform the Lupatech. In addition to that, Paranapanema is 1.68 times more volatile than Lupatech SA. It trades about -0.18 of its total potential returns per unit of risk. Lupatech SA is currently generating about -0.04 per unit of volatility. If you would invest  144.00  in Lupatech SA on September 12, 2024 and sell it today you would lose (12.00) from holding Lupatech SA or give up 8.33% of portfolio value over 90 days.

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

Paranapanema SA  vs.  Lupatech SA

Paranapanema SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Paranapanema SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Lupatech SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lupatech SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Paranapanema and Lupatech

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

The idea behind Paranapanema SA and Lupatech 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.