Correlation Between Paranapanema and PDG Realty

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

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

Diversification Opportunities for Paranapanema and PDG Realty

0.06

Correlation Coefficient

Paranapanema  PDG Realty

Significant diversification

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

Pair Corralation between Paranapanema and PDG Realty

Assuming the 90 days trading horizon Paranapanema SA is expected to generate 0.56 times more return on investment than PDG Realty. However, Paranapanema SA is 1.79 times less risky than PDG Realty. It trades about 0.05 of its potential returns per unit of risk. PDG Realty SA is currently generating about 0.01 per unit of risk. If you would invest  100.00  in Paranapanema SA on December 2, 2024 and sell it today you would earn a total of  7.00  from holding Paranapanema SA or generate 7.0% return on investment over 90 days.

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

Paranapanema SA  vs.  PDG Realty SA

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.

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.

Pair Trading with Paranapanema and PDG Realty

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

The idea behind Paranapanema SA and PDG Realty 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.