Correlation Between Rompetrol Rafi and Electromagnetica

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

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

Diversification Opportunities for Rompetrol Rafi and Electromagnetica

0.12

Correlation Coefficient

Rompetrol Rafi  Electromagnetica

Average diversification

The 3 months correlation between Rompetrol and Electromagnetica is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Rompetrol Rafi and Electromagnetica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electromagnetica and Rompetrol Rafi 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 Rompetrol Rafi 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 Rompetrol Rafi i.e., Rompetrol Rafi and Electromagnetica go up and down completely randomly.

Pair Corralation between Rompetrol Rafi and Electromagnetica

Assuming the 90 days trading horizon Rompetrol Rafi is expected to under-perform the Electromagnetica. But the stock apears to be less risky and, when comparing its historical volatility, Rompetrol Rafi is 2.61 times less risky than Electromagnetica. The stock trades about -0.13 of its potential returns per unit of risk. The Electromagnetica SA is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  21.00  in Electromagnetica SA on October 15, 2024 and sell it today you would earn a total of  3.00  from holding Electromagnetica SA or generate 14.29% return on investment over 90 days.

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

Rompetrol Rafi  vs.  Electromagnetica SA

Rompetrol Rafi

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Rompetrol Rafi has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Rompetrol Rafi is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Electromagnetica

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Electromagnetica SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Electromagnetica displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rompetrol Rafi and Electromagnetica

The main advantage of trading using opposite Rompetrol Rafi and Electromagnetica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rompetrol Rafi 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 Rompetrol Rafi 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.