Correlation Between Farmaceutica and Iproeb SA

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

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

Diversification Opportunities for Farmaceutica and Iproeb SA

0.83

Correlation Coefficient

Farmaceutica  Iproeb SA

Very poor diversification

The 3 months correlation between Farmaceutica and Iproeb is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Farmaceutica R and Iproeb SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iproeb SA 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 Iproeb SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iproeb SA has no effect on the direction of Farmaceutica i.e., Farmaceutica and Iproeb SA go up and down completely randomly.

Pair Corralation between Farmaceutica and Iproeb SA

Assuming the 90 days trading horizon Farmaceutica R is expected to generate 0.89 times more return on investment than Iproeb SA. However, Farmaceutica R is 1.12 times less risky than Iproeb SA. It trades about -0.11 of its potential returns per unit of risk. Iproeb SA is currently generating about -0.16 per unit of risk. If you would invest  75.00  in Farmaceutica R on September 27, 2024 and sell it today you would lose (11.00) from holding Farmaceutica R or give up 14.67% of portfolio value over 90 days.

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

Farmaceutica R  vs.  Iproeb 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.

Iproeb SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iproeb SA 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.

Pair Trading with Farmaceutica and Iproeb SA

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

The idea behind Farmaceutica R and Iproeb 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.