Correlation Between Transocean and Localiza Rent

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

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

Diversification Opportunities for Transocean and Localiza Rent

0.25

Correlation Coefficient

Transocean  Localiza Rent

Modest diversification

The 3 months correlation between Transocean and Localiza is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Transocean and Localiza Rent a in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Localiza Rent a and Transocean 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 Transocean are associated (or correlated) with Localiza Rent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Localiza Rent a has no effect on the direction of Transocean i.e., Transocean and Localiza Rent go up and down completely randomly.

Pair Corralation between Transocean and Localiza Rent

Assuming the 90 days trading horizon Transocean is expected to generate 0.64 times more return on investment than Localiza Rent. However, Transocean is 1.57 times less risky than Localiza Rent. It trades about -0.17 of its potential returns per unit of risk. Localiza Rent a is currently generating about -0.33 per unit of risk. If you would invest  2,481  in Transocean on September 27, 2024 and sell it today you would lose (233.00) from holding Transocean or give up 9.39% of portfolio value over 90 days.

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

Transocean  vs.  Localiza Rent a

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong technical and fundamental indicators, Transocean is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Localiza Rent a

Risk-Adjusted Performance

0 of 100

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 weak 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.

Pair Trading with Transocean and Localiza Rent

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

The idea behind Transocean and Localiza Rent a 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.