Correlation Between Basic Materials and Vinci Logistica

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

By analyzing existing cross correlation between Basic Materials and Vinci Logistica Fundo, you can compare the effects of market volatilities on Basic Materials and Vinci Logistica 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 Basic Materials with a short position of Vinci Logistica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Vinci Logistica.

Diversification Opportunities for Basic Materials and Vinci Logistica

-0.6

Correlation Coefficient

Basic Materials  Vinci Logistica

Excellent diversification

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

Pair Corralation between Basic Materials and Vinci Logistica

Assuming the 90 days trading horizon Basic Materials is expected to generate 1.1 times more return on investment than Vinci Logistica. However, Basic Materials is 1.1 times more volatile than Vinci Logistica Fundo. It trades about 0.09 of its potential returns per unit of risk. Vinci Logistica Fundo is currently generating about -0.16 per unit of risk. If you would invest  554,603  in Basic Materials on September 4, 2024 and sell it today you would earn a total of  34,462  from holding Basic Materials or generate 6.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	96.88%
Values	Daily Returns

Basic Materials  vs.  Vinci Logistica Fundo

Pair Trading with Basic Materials and Vinci Logistica

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

The idea behind Basic Materials and Vinci Logistica Fundo 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 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.