Correlation Between Companhia and Hisense Home

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

Diversification Opportunities for Companhia and Hisense Home

-0.34

Correlation Coefficient

Companhia  Hisense Home

Very good diversification

The 3 months correlation between Companhia and Hisense is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento and Hisense Home Appliances in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hisense Home Appliances 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 Hisense Home. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hisense Home Appliances has no effect on the direction of Companhia i.e., Companhia and Hisense Home go up and down completely randomly.

Pair Corralation between Companhia and Hisense Home

Assuming the 90 days trading horizon Companhia de Saneamento is expected to under-perform the Hisense Home. But the stock apears to be less risky and, when comparing its historical volatility, Companhia de Saneamento is 2.38 times less risky than Hisense Home. The stock trades about -0.01 of its potential returns per unit of risk. The Hisense Home Appliances is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  229.00  in Hisense Home Appliances on October 9, 2024 and sell it today you would earn a total of  96.00  from holding Hisense Home Appliances or generate 41.92% 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.  Hisense Home Appliances

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.

Hisense Home Appliances

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hisense Home Appliances has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Hisense Home is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Companhia and Hisense Home

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

The idea behind Companhia de Saneamento and Hisense Home Appliances 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.