Correlation Between Companhia and PennantPark Investment

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

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

Diversification Opportunities for Companhia and PennantPark Investment

0.09

Correlation Coefficient

Companhia  PennantPark Investment

Significant diversification

The 3 months correlation between Companhia and PennantPark is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento and PennantPark Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PennantPark Investment and Companhia 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 Companhia de Saneamento are associated (or correlated) with PennantPark Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PennantPark Investment has no effect on the direction of Companhia i.e., Companhia and PennantPark Investment go up and down completely randomly.

Pair Corralation between Companhia and PennantPark Investment

Assuming the 90 days trading horizon Companhia de Saneamento is expected to under-perform the PennantPark Investment. In addition to that, Companhia is 1.19 times more volatile than PennantPark Investment. It trades about -0.11 of its total potential returns per unit of risk. PennantPark Investment is currently generating about 0.07 per unit of volatility. If you would invest  591.00  in PennantPark Investment on September 21, 2024 and sell it today you would earn a total of  51.00  from holding PennantPark Investment or generate 8.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.85%
Values	Daily Returns

Companhia de Saneamento  vs.  PennantPark Investment

Companhia de Saneamento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia de Saneamento has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's forward-looking indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

PennantPark Investment

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PennantPark Investment are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, PennantPark Investment may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Companhia and PennantPark Investment

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

The idea behind Companhia de Saneamento and PennantPark Investment 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.