Correlation Between WEG SA and Raia Drogasil

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

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

Diversification Opportunities for WEG SA and Raia Drogasil

0.73

Correlation Coefficient

WEG SA  Raia Drogasil

Poor diversification

The 3 months correlation between WEG and Raia is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding WEG SA and Raia Drogasil SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Raia Drogasil SA and WEG SA 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 WEG SA are associated (or correlated) with Raia Drogasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Raia Drogasil SA has no effect on the direction of WEG SA i.e., WEG SA and Raia Drogasil go up and down completely randomly.

Pair Corralation between WEG SA and Raia Drogasil

Assuming the 90 days trading horizon WEG SA is expected to under-perform the Raia Drogasil. But the stock apears to be less risky and, when comparing its historical volatility, WEG SA is 1.14 times less risky than Raia Drogasil. The stock trades about -0.1 of its potential returns per unit of risk. The Raia Drogasil SA is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest  2,200  in Raia Drogasil SA on December 29, 2024 and sell it today you would lose (266.00) from holding Raia Drogasil SA or give up 12.09% of portfolio value over 90 days.

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

WEG SA  vs.  Raia Drogasil SA

WEG SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days WEG SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Raia Drogasil SA

Risk-Adjusted Performance

Very Weak

Over the last 90 days Raia Drogasil SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with WEG SA and Raia Drogasil

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

The idea behind WEG SA and Raia Drogasil SA 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.