Correlation Between Compa Sibiu and IAR SA

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

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

Diversification Opportunities for Compa Sibiu and IAR SA

0.6

Correlation Coefficient

Compa Sibiu  IAR SA

Poor diversification

The 3 months correlation between Compa and IAR is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Compa Sibiu and IAR SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IAR SA and Compa Sibiu 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 Compa Sibiu are associated (or correlated) with IAR SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IAR SA has no effect on the direction of Compa Sibiu i.e., Compa Sibiu and IAR SA go up and down completely randomly.

Pair Corralation between Compa Sibiu and IAR SA

Assuming the 90 days trading horizon Compa Sibiu is expected to under-perform the IAR SA. In addition to that, Compa Sibiu is 1.33 times more volatile than IAR SA. It trades about -0.09 of its total potential returns per unit of risk. IAR SA is currently generating about -0.01 per unit of volatility. If you would invest  1,300  in IAR SA on September 5, 2024 and sell it today you would lose (15.00) from holding IAR SA or give up 1.15% of portfolio value over 90 days.

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

Compa Sibiu  vs.  IAR SA

Compa Sibiu

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Compa Sibiu has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

IAR SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IAR SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IAR SA is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Compa Sibiu and IAR SA

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

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