Correlation Between Farmaceutica and Electromagnetica

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

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

Diversification Opportunities for Farmaceutica and Electromagnetica

0.35

Correlation Coefficient

Farmaceutica  Electromagnetica

Weak diversification

The 3 months correlation between Farmaceutica and Electromagnetica is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Farmaceutica R and Electromagnetica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electromagnetica and Farmaceutica 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 Farmaceutica R are associated (or correlated) with Electromagnetica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electromagnetica has no effect on the direction of Farmaceutica i.e., Farmaceutica and Electromagnetica go up and down completely randomly.

Pair Corralation between Farmaceutica and Electromagnetica

Assuming the 90 days trading horizon Farmaceutica R is expected to under-perform the Electromagnetica. But the stock apears to be less risky and, when comparing its historical volatility, Farmaceutica R is 1.88 times less risky than Electromagnetica. The stock trades about -0.03 of its potential returns per unit of risk. The Electromagnetica SA is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  24.00  in Electromagnetica SA on September 26, 2024 and sell it today you would lose (3.00) from holding Electromagnetica SA or give up 12.5% of portfolio value over 90 days.

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

Farmaceutica R  vs.  Electromagnetica SA

Farmaceutica R

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Farmaceutica R has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Electromagnetica

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Electromagnetica SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Electromagnetica may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Farmaceutica and Electromagnetica

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

The idea behind Farmaceutica R and Electromagnetica SA 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.