Correlation Between Porto Seguro and Oracle

Can any of the company-specific risk be diversified away by investing in both Porto Seguro and Oracle 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 Oracle 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 Oracle, you can compare the effects of market volatilities on Porto Seguro and Oracle 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 Oracle. Check out your portfolio center. Please also check ongoing floating volatility patterns of Porto Seguro and Oracle.

Diversification Opportunities for Porto Seguro and Oracle

0.81

Correlation Coefficient

Porto Seguro  Oracle

Very poor diversification

The 3 months correlation between Porto and Oracle is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Porto Seguro SA and Oracle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oracle 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 Oracle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oracle has no effect on the direction of Porto Seguro i.e., Porto Seguro and Oracle go up and down completely randomly.

Pair Corralation between Porto Seguro and Oracle

Assuming the 90 days trading horizon Porto Seguro is expected to generate 1.28 times less return on investment than Oracle. But when comparing it to its historical volatility, Porto Seguro SA is 1.83 times less risky than Oracle. It trades about 0.16 of its potential returns per unit of risk. Oracle is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  15,289  in Oracle on September 17, 2024 and sell it today you would earn a total of  2,329  from holding Oracle or generate 15.23% return on investment over 90 days.

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

Porto Seguro SA  vs.  Oracle

Porto Seguro SA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Porto Seguro SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Porto Seguro may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Oracle

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental indicators, Oracle sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Porto Seguro and Oracle

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

The idea behind Porto Seguro SA and Oracle 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.