Correlation Between Valvoline and Cosan SA

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

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

Diversification Opportunities for Valvoline and Cosan SA

0.04

Correlation Coefficient

Valvoline  Cosan SA

Significant diversification

The 3 months correlation between Valvoline and Cosan is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Valvoline and Cosan SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cosan SA ADR and Valvoline 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 Valvoline are associated (or correlated) with Cosan SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cosan SA ADR has no effect on the direction of Valvoline i.e., Valvoline and Cosan SA go up and down completely randomly.

Pair Corralation between Valvoline and Cosan SA

Considering the 90-day investment horizon Valvoline is expected to under-perform the Cosan SA. But the stock apears to be less risky and, when comparing its historical volatility, Valvoline is 1.91 times less risky than Cosan SA. The stock trades about -0.02 of its potential returns per unit of risk. The Cosan SA ADR is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  537.00  in Cosan SA ADR on December 29, 2024 and sell it today you would earn a total of  7.00  from holding Cosan SA ADR or generate 1.3% return on investment over 90 days.

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

Valvoline  vs.  Cosan SA ADR

Valvoline

Risk-Adjusted Performance

Very Weak

Over the last 90 days Valvoline has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Valvoline is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Cosan SA ADR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Cosan SA ADR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Cosan SA is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Valvoline and Cosan SA

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

The idea behind Valvoline and Cosan SA ADR 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.