Correlation Between Fundo Investimento and Target

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

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

Diversification Opportunities for Fundo Investimento and Target

0.29

Correlation Coefficient

Fundo Investimento  Target

Modest diversification

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

Pair Corralation between Fundo Investimento and Target

Assuming the 90 days trading horizon Fundo Investimento is expected to generate 24.15 times less return on investment than Target. But when comparing it to its historical volatility, Fundo Investimento Imobiliario is 2.93 times less risky than Target. It trades about 0.01 of its potential returns per unit of risk. Target is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  71,113  in Target on October 7, 2024 and sell it today you would earn a total of  12,169  from holding Target or generate 17.11% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	91.56%
Values	Daily Returns

Fundo Investimento Imobiliario  vs.  Target

Fundo Investimento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Fundo Investimento Imobiliario has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong essential indicators, Fundo Investimento is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Target

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Target are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Target may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Fundo Investimento and Target

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

The idea behind Fundo Investimento Imobiliario and Target 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.