Correlation Between Empresa Metropolitana and Companhia Paranaense

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

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

Diversification Opportunities for Empresa Metropolitana and Companhia Paranaense

0.2

Correlation Coefficient

Empresa Metropolitana  Companhia Paranaense

Modest diversification

The 3 months correlation between Empresa and Companhia is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Empresa Metropolitana de and Companhia Paranaense de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Paranaense and Empresa Metropolitana 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 Empresa Metropolitana de are associated (or correlated) with Companhia Paranaense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Paranaense has no effect on the direction of Empresa Metropolitana i.e., Empresa Metropolitana and Companhia Paranaense go up and down completely randomly.

Pair Corralation between Empresa Metropolitana and Companhia Paranaense

Assuming the 90 days trading horizon Empresa Metropolitana de is expected to generate 1.38 times more return on investment than Companhia Paranaense. However, Empresa Metropolitana is 1.38 times more volatile than Companhia Paranaense de. It trades about 0.02 of its potential returns per unit of risk. Companhia Paranaense de is currently generating about -0.09 per unit of risk. If you would invest  3,926  in Empresa Metropolitana de on September 12, 2024 and sell it today you would earn a total of  44.00  from holding Empresa Metropolitana de or generate 1.12% return on investment over 90 days.

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

Empresa Metropolitana de  vs.  Companhia Paranaense de

Empresa Metropolitana

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Empresa Metropolitana de are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Empresa Metropolitana is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Companhia Paranaense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Paranaense de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Empresa Metropolitana and Companhia Paranaense

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

The idea behind Empresa Metropolitana de and Companhia Paranaense de 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.