Correlation Between Porto Seguro and M Dias

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

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

Diversification Opportunities for Porto Seguro and M Dias

0.67

Correlation Coefficient

Porto Seguro  M Dias

Poor diversification

The 3 months correlation between Porto and MDIA3 is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Porto Seguro SA and M Dias Branco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on M Dias Branco and Porto Seguro 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 Porto Seguro SA are associated (or correlated) with M Dias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of M Dias Branco has no effect on the direction of Porto Seguro i.e., Porto Seguro and M Dias go up and down completely randomly.

Pair Corralation between Porto Seguro and M Dias

Assuming the 90 days trading horizon Porto Seguro is expected to generate 1.2 times less return on investment than M Dias. But when comparing it to its historical volatility, Porto Seguro SA is 1.84 times less risky than M Dias. It trades about 0.14 of its potential returns per unit of risk. M Dias Branco is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,976  in M Dias Branco on December 28, 2024 and sell it today you would earn a total of  293.00  from holding M Dias Branco or generate 14.83% return on investment over 90 days.

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

Porto Seguro SA  vs.  M Dias Branco

Porto Seguro SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Porto Seguro SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Porto Seguro unveiled solid returns over the last few months and may actually be approaching a breakup point.

M Dias Branco

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in M Dias Branco are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, M Dias unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Porto Seguro and M Dias

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

The idea behind Porto Seguro SA and M Dias Branco 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.