Correlation Between Alfa Holdings and IRB Brasil

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

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

Diversification Opportunities for Alfa Holdings and IRB Brasil

0.65

Correlation Coefficient

Alfa Holdings  IRB Brasil

Poor diversification

The 3 months correlation between Alfa and IRB is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Alfa Holdings SA and IRB Brasil Resseguros SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IRB Brasil Resseguros and Alfa Holdings 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 Alfa Holdings SA are associated (or correlated) with IRB Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IRB Brasil Resseguros has no effect on the direction of Alfa Holdings i.e., Alfa Holdings and IRB Brasil go up and down completely randomly.

Pair Corralation between Alfa Holdings and IRB Brasil

Assuming the 90 days trading horizon Alfa Holdings is expected to generate 5.24 times less return on investment than IRB Brasil. But when comparing it to its historical volatility, Alfa Holdings SA is 1.75 times less risky than IRB Brasil. It trades about 0.02 of its potential returns per unit of risk. IRB Brasil Resseguros SA is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  2,160  in IRB Brasil Resseguros SA on September 5, 2024 and sell it today you would earn a total of  1,780  from holding IRB Brasil Resseguros SA or generate 82.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.4%
Values	Daily Returns

Alfa Holdings SA  vs.  IRB Brasil Resseguros SA

Alfa Holdings SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alfa Holdings SA 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 Preferred 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.

IRB Brasil Resseguros

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IRB Brasil Resseguros SA 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.

Pair Trading with Alfa Holdings and IRB Brasil

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

The idea behind Alfa Holdings SA and IRB Brasil Resseguros 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.