Correlation Between Sonae SGPS and Cofina SGPS

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

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

Diversification Opportunities for Sonae SGPS and Cofina SGPS

-0.14

Correlation Coefficient

Sonae SGPS  Cofina SGPS

Good diversification

The 3 months correlation between Sonae and Cofina is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Sonae SGPS SA and Cofina SGPS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cofina SGPS and Sonae SGPS 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 Sonae SGPS SA are associated (or correlated) with Cofina SGPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cofina SGPS has no effect on the direction of Sonae SGPS i.e., Sonae SGPS and Cofina SGPS go up and down completely randomly.

Pair Corralation between Sonae SGPS and Cofina SGPS

Assuming the 90 days trading horizon Sonae SGPS SA is expected to under-perform the Cofina SGPS. But the stock apears to be less risky and, when comparing its historical volatility, Sonae SGPS SA is 3.27 times less risky than Cofina SGPS. The stock trades about -0.12 of its potential returns per unit of risk. The Cofina SGPS is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  59.00  in Cofina SGPS on September 16, 2024 and sell it today you would earn a total of  6.00  from holding Cofina SGPS or generate 10.17% return on investment over 90 days.

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

Sonae SGPS SA  vs.  Cofina SGPS

Sonae SGPS SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Sonae SGPS SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Sonae SGPS is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Cofina SGPS

Risk-Adjusted Performance

5 of 100

Modest

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

Pair Trading with Sonae SGPS and Cofina SGPS

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

The idea behind Sonae SGPS SA and Cofina SGPS 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.