Correlation Between StoneCo and Gen Digital

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

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

Diversification Opportunities for StoneCo and Gen Digital

0.29

Correlation Coefficient

StoneCo  Gen Digital

Modest diversification

The 3 months correlation between StoneCo and Gen is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding StoneCo and Gen Digital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gen Digital and StoneCo 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 StoneCo are associated (or correlated) with Gen Digital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gen Digital has no effect on the direction of StoneCo i.e., StoneCo and Gen Digital go up and down completely randomly.

Pair Corralation between StoneCo and Gen Digital

Given the investment horizon of 90 days StoneCo is expected to generate 2.59 times more return on investment than Gen Digital. However, StoneCo is 2.59 times more volatile than Gen Digital. It trades about 0.18 of its potential returns per unit of risk. Gen Digital is currently generating about 0.01 per unit of risk. If you would invest  819.00  in StoneCo on December 27, 2024 and sell it today you would earn a total of  320.00  from holding StoneCo or generate 39.07% return on investment over 90 days.

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

StoneCo  vs.  Gen Digital

StoneCo

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in StoneCo are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, StoneCo exhibited solid returns over the last few months and may actually be approaching a breakup point.

Gen Digital

Risk-Adjusted Performance

Very Weak

Over the last 90 days Gen Digital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, Gen Digital is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with StoneCo and Gen Digital

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

The idea behind StoneCo and Gen Digital 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.