Correlation Between Afya and Transocean

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

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

Diversification Opportunities for Afya and Transocean

0.67

Correlation Coefficient

Afya  Transocean

Poor diversification

The 3 months correlation between Afya and Transocean is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Afya and Transocean in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Transocean and Afya 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 Afya are associated (or correlated) with Transocean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Transocean has no effect on the direction of Afya i.e., Afya and Transocean go up and down completely randomly.

Pair Corralation between Afya and Transocean

Given the investment horizon of 90 days Afya is expected to generate 0.65 times more return on investment than Transocean. However, Afya is 1.53 times less risky than Transocean. It trades about -0.04 of its potential returns per unit of risk. Transocean is currently generating about -0.13 per unit of risk. If you would invest  1,654  in Afya on September 24, 2024 and sell it today you would lose (104.00) from holding Afya or give up 6.29% of portfolio value over 90 days.

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

Afya  vs.  Transocean

Afya

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Afya has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Afya is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Transocean

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Transocean has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Afya and Transocean

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

The idea behind Afya and Transocean 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.