Correlation Between Companhia and Banco Do

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

Diversification Opportunities for Companhia and Banco Do

0.25

Correlation Coefficient

Companhia  Banco Do

Modest diversification

The 3 months correlation between Companhia and Banco is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento and Banco do Estado in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco do Estado 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 Banco Do. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco do Estado has no effect on the direction of Companhia i.e., Companhia and Banco Do go up and down completely randomly.

Pair Corralation between Companhia and Banco Do

Assuming the 90 days trading horizon Companhia de Saneamento is expected to under-perform the Banco Do. In addition to that, Companhia is 1.04 times more volatile than Banco do Estado. It trades about -0.03 of its total potential returns per unit of risk. Banco do Estado is currently generating about 0.06 per unit of volatility. If you would invest  1,035  in Banco do Estado on November 28, 2024 and sell it today you would earn a total of  54.00  from holding Banco do Estado or generate 5.22% return on investment over 90 days.

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

Companhia de Saneamento  vs.  Banco do Estado

Companhia de Saneamento

Risk-Adjusted Performance

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 somewhat strong basic indicators, Companhia is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Banco do Estado

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Banco do Estado are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Banco Do is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Companhia and Banco Do

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

The idea behind Companhia de Saneamento and Banco do Estado 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.