Correlation Between CA Modas and Mercantil

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

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

Diversification Opportunities for CA Modas and Mercantil

-0.59

Correlation Coefficient

CA Modas  Mercantil

Excellent diversification

The 3 months correlation between CEAB3 and Mercantil is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding CA Modas SA and Mercantil do Brasil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercantil do Brasil and CA Modas 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 CA Modas SA are associated (or correlated) with Mercantil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercantil do Brasil has no effect on the direction of CA Modas i.e., CA Modas and Mercantil go up and down completely randomly.

Pair Corralation between CA Modas and Mercantil

Assuming the 90 days trading horizon CA Modas SA is expected to generate 1.09 times more return on investment than Mercantil. However, CA Modas is 1.09 times more volatile than Mercantil do Brasil. It trades about 0.09 of its potential returns per unit of risk. Mercantil do Brasil is currently generating about 0.0 per unit of risk. If you would invest  1,017  in CA Modas SA on August 30, 2024 and sell it today you would earn a total of  177.00  from holding CA Modas SA or generate 17.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

CA Modas SA  vs.  Mercantil do Brasil

CA Modas SA

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days CA Modas SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively weak basic indicators, CA Modas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Mercantil do Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mercantil do Brasil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Mercantil is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with CA Modas and Mercantil

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

The idea behind CA Modas SA and Mercantil do Brasil 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.