Correlation Between Companhia and American Public

Can any of the company-specific risk be diversified away by investing in both Companhia and American Public 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 American Public 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 American Public Education, you can compare the effects of market volatilities on Companhia and American Public 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 American Public. Check out your portfolio center. Please also check ongoing floating volatility patterns of Companhia and American Public.

Diversification Opportunities for Companhia and American Public

-0.15

Correlation Coefficient

Companhia  American Public

Good diversification

The 3 months correlation between Companhia and American is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento and American Public Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Public Education 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 American Public. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Public Education has no effect on the direction of Companhia i.e., Companhia and American Public go up and down completely randomly.

Pair Corralation between Companhia and American Public

Assuming the 90 days trading horizon Companhia de Saneamento is expected to under-perform the American Public. But the stock apears to be less risky and, when comparing its historical volatility, Companhia de Saneamento is 1.17 times less risky than American Public. The stock trades about -0.05 of its potential returns per unit of risk. The American Public Education is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  1,970  in American Public Education on October 10, 2024 and sell it today you would earn a total of  50.00  from holding American Public Education or generate 2.54% return on investment over 90 days.

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

Companhia de Saneamento  vs.  American Public Education

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 nearly stable forward-looking indicators, Companhia is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

American Public Education

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, American Public reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Companhia and American Public

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

The idea behind Companhia de Saneamento and American Public Education 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 Stocks Directory module to find actively traded stocks across global markets.