Correlation Between Aurea SA and ABC Arbitrage

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

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

Diversification Opportunities for Aurea SA and ABC Arbitrage

0.63

Correlation Coefficient

Aurea SA  ABC Arbitrage

Poor diversification

The 3 months correlation between Aurea and ABC is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Aurea SA and ABC arbitrage SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABC arbitrage SA and Aurea 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 Aurea SA are associated (or correlated) with ABC Arbitrage. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABC arbitrage SA has no effect on the direction of Aurea SA i.e., Aurea SA and ABC Arbitrage go up and down completely randomly.

Pair Corralation between Aurea SA and ABC Arbitrage

Assuming the 90 days trading horizon Aurea SA is expected to under-perform the ABC Arbitrage. In addition to that, Aurea SA is 1.93 times more volatile than ABC arbitrage SA. It trades about -0.58 of its total potential returns per unit of risk. ABC arbitrage SA is currently generating about -0.08 per unit of volatility. If you would invest  480.00  in ABC arbitrage SA on September 5, 2024 and sell it today you would lose (12.00) from holding ABC arbitrage SA or give up 2.5% of portfolio value over 90 days.

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

Aurea SA  vs.  ABC arbitrage SA

Aurea SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Aurea SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Aurea SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ABC arbitrage SA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ABC arbitrage SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ABC Arbitrage sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Aurea SA and ABC Arbitrage

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

The idea behind Aurea SA and ABC arbitrage 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.