Correlation Between PT Bank and EDP Renovveis

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

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

Diversification Opportunities for PT Bank and EDP Renovveis

0.79

Correlation Coefficient

PT Bank  EDP Renovveis

Poor diversification

The 3 months correlation between PQ9 and EDP is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Mandiri and EDP Renovveis SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Renovveis SA and PT Bank 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 PT Bank Mandiri are associated (or correlated) with EDP Renovveis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Renovveis SA has no effect on the direction of PT Bank i.e., PT Bank and EDP Renovveis go up and down completely randomly.

Pair Corralation between PT Bank and EDP Renovveis

Assuming the 90 days horizon PT Bank Mandiri is expected to generate 3.08 times more return on investment than EDP Renovveis. However, PT Bank is 3.08 times more volatile than EDP Renovveis SA. It trades about -0.04 of its potential returns per unit of risk. EDP Renovveis SA is currently generating about -0.25 per unit of risk. If you would invest  35.00  in PT Bank Mandiri on September 22, 2024 and sell it today you would lose (3.00) from holding PT Bank Mandiri or give up 8.57% of portfolio value over 90 days.

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

PT Bank Mandiri  vs.  EDP Renovveis SA

PT Bank Mandiri

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Mandiri has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

EDP Renovveis SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Renovveis SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with PT Bank and EDP Renovveis

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

The idea behind PT Bank Mandiri and EDP Renovveis 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.