Correlation Between Rio Paranapanema and Alfa Holdings

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

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

Diversification Opportunities for Rio Paranapanema and Alfa Holdings

-0.64

Correlation Coefficient

Rio Paranapanema  Alfa Holdings

Excellent diversification

The 3 months correlation between Rio and Alfa is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Rio Paranapanema Energia and Alfa Holdings SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alfa Holdings SA and Rio Paranapanema 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 Rio Paranapanema Energia are associated (or correlated) with Alfa Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alfa Holdings SA has no effect on the direction of Rio Paranapanema i.e., Rio Paranapanema and Alfa Holdings go up and down completely randomly.

Pair Corralation between Rio Paranapanema and Alfa Holdings

Assuming the 90 days trading horizon Rio Paranapanema Energia is expected to generate 1.06 times more return on investment than Alfa Holdings. However, Rio Paranapanema is 1.06 times more volatile than Alfa Holdings SA. It trades about 0.04 of its potential returns per unit of risk. Alfa Holdings SA is currently generating about -0.19 per unit of risk. If you would invest  2,721  in Rio Paranapanema Energia on September 13, 2024 and sell it today you would earn a total of  131.00  from holding Rio Paranapanema Energia or generate 4.81% return on investment over 90 days.

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

Rio Paranapanema Energia  vs.  Alfa Holdings SA

Rio Paranapanema Energia

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Paranapanema Energia are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rio Paranapanema may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Alfa Holdings SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Alfa Holdings SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Preferred Stock's basic indicators remain comparatively stable which may send shares a bit higher in January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Rio Paranapanema and Alfa Holdings

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

The idea behind Rio Paranapanema Energia and Alfa Holdings 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.

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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.