Correlation Between PSI 20 and REN Redes

Can any of the company-specific risk be diversified away by investing in both PSI 20 and REN Redes 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 PSI 20 and REN Redes into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between PSI 20 Stock and REN Redes, you can compare the effects of market volatilities on PSI 20 and REN Redes 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 PSI 20 with a short position of REN Redes. Check out your portfolio center. Please also check ongoing floating volatility patterns of PSI 20 and REN Redes.

Diversification Opportunities for PSI 20 and REN Redes

0.67

Correlation Coefficient

PSI 20  REN Redes

Poor diversification

The 3 months correlation between PSI and REN is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding PSI 20 Stock and REN Redes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REN Redes and PSI 20 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 PSI 20 Stock are associated (or correlated) with REN Redes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REN Redes has no effect on the direction of PSI 20 i.e., PSI 20 and REN Redes go up and down completely randomly.

Pair Corralation between PSI 20 and REN Redes

Assuming the 90 days trading horizon PSI 20 Stock is expected to generate 0.89 times more return on investment than REN Redes. However, PSI 20 Stock is 1.12 times less risky than REN Redes. It trades about 0.21 of its potential returns per unit of risk. REN Redes is currently generating about 0.09 per unit of risk. If you would invest  643,089  in PSI 20 Stock on November 28, 2024 and sell it today you would earn a total of  55,744  from holding PSI 20 Stock or generate 8.67% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.39%
Values	Daily Returns

PSI 20 Stock  vs.  REN Redes

Pair Trading with PSI 20 and REN Redes

The main advantage of trading using opposite PSI 20 and REN Redes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PSI 20 position performs unexpectedly, REN Redes 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 REN Redes will offset losses from the drop in REN Redes' long position.

The idea behind PSI 20 Stock and REN Redes 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.