Correlation Between Cruzeiro and TAL Education

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

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

Diversification Opportunities for Cruzeiro and TAL Education

-0.26

Correlation Coefficient

Cruzeiro  TAL Education

Very good diversification

The 3 months correlation between Cruzeiro and TAL is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Cruzeiro do Sul and TAL Education Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TAL Education Group and Cruzeiro 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 Cruzeiro do Sul are associated (or correlated) with TAL Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TAL Education Group has no effect on the direction of Cruzeiro i.e., Cruzeiro and TAL Education go up and down completely randomly.

Pair Corralation between Cruzeiro and TAL Education

Assuming the 90 days trading horizon Cruzeiro do Sul is expected to under-perform the TAL Education. But the stock apears to be less risky and, when comparing its historical volatility, Cruzeiro do Sul is 1.02 times less risky than TAL Education. The stock trades about -0.01 of its potential returns per unit of risk. The TAL Education Group is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  461.00  in TAL Education Group on September 25, 2024 and sell it today you would earn a total of  155.00  from holding TAL Education Group or generate 33.62% return on investment over 90 days.

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

Cruzeiro do Sul  vs.  TAL Education Group

Cruzeiro do Sul

Risk-Adjusted Performance

0 of 100

Very Weak

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

TAL Education Group

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in TAL Education Group are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, TAL Education sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Cruzeiro and TAL Education

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

The idea behind Cruzeiro do Sul and TAL Education Group 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.