Correlation Between Localiza Rent and Banco BTG

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Can any of the company-specific risk be diversified away by investing in both Localiza Rent and Banco BTG 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 Localiza Rent and Banco BTG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Localiza Rent a and Banco BTG Pactual, you can compare the effects of market volatilities on Localiza Rent and Banco BTG 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 Localiza Rent with a short position of Banco BTG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Localiza Rent and Banco BTG.

Diversification Opportunities for Localiza Rent and Banco BTG

0.69
  Correlation Coefficient

Poor diversification

The 3 months correlation between Localiza and Banco is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Localiza Rent a and Banco BTG Pactual in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco BTG Pactual and Localiza Rent 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 Localiza Rent a are associated (or correlated) with Banco BTG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco BTG Pactual has no effect on the direction of Localiza Rent i.e., Localiza Rent and Banco BTG go up and down completely randomly.

Pair Corralation between Localiza Rent and Banco BTG

Assuming the 90 days trading horizon Localiza Rent a is expected to under-perform the Banco BTG. In addition to that, Localiza Rent is 1.46 times more volatile than Banco BTG Pactual. It trades about -0.1 of its total potential returns per unit of risk. Banco BTG Pactual is currently generating about -0.13 per unit of volatility. If you would invest  3,530  in Banco BTG Pactual on September 10, 2024 and sell it today you would lose (469.00) from holding Banco BTG Pactual or give up 13.29% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Localiza Rent a  vs.  Banco BTG Pactual

 Performance 
       Timeline  
Localiza Rent a 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Localiza Rent a has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
Banco BTG Pactual 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Banco BTG Pactual has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Localiza Rent and Banco BTG Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Localiza Rent and Banco BTG

The main advantage of trading using opposite Localiza Rent and Banco BTG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Localiza Rent position performs unexpectedly, Banco BTG 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 Banco BTG will offset losses from the drop in Banco BTG's long position.
The idea behind Localiza Rent a and Banco BTG Pactual 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.

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