Correlation Between COGNA EDUCACAO and CHINA EAST

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

By analyzing existing cross correlation between COGNA EDUCACAO SPADR and CHINA EAST ED, you can compare the effects of market volatilities on COGNA EDUCACAO and CHINA EAST 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 COGNA EDUCACAO with a short position of CHINA EAST. Check out your portfolio center. Please also check ongoing floating volatility patterns of COGNA EDUCACAO and CHINA EAST.

Diversification Opportunities for COGNA EDUCACAO and CHINA EAST

0.1

Correlation Coefficient

COGNA EDUCACAO  CHINA EAST

Average diversification

The 3 months correlation between COGNA and CHINA is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding COGNA EDUCACAO SPADR and CHINA EAST ED in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CHINA EAST ED and COGNA EDUCACAO 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 COGNA EDUCACAO SPADR are associated (or correlated) with CHINA EAST. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CHINA EAST ED has no effect on the direction of COGNA EDUCACAO i.e., COGNA EDUCACAO and CHINA EAST go up and down completely randomly.

Pair Corralation between COGNA EDUCACAO and CHINA EAST

Assuming the 90 days trading horizon COGNA EDUCACAO SPADR is expected to generate 3.61 times more return on investment than CHINA EAST. However, COGNA EDUCACAO is 3.61 times more volatile than CHINA EAST ED. It trades about 0.06 of its potential returns per unit of risk. CHINA EAST ED is currently generating about 0.13 per unit of risk. If you would invest  18.00  in COGNA EDUCACAO SPADR on September 23, 2024 and sell it today you would earn a total of  0.00  from holding COGNA EDUCACAO SPADR or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.48%
Values	Daily Returns

COGNA EDUCACAO SPADR  vs.  CHINA EAST ED

COGNA EDUCACAO SPADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in COGNA EDUCACAO SPADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, COGNA EDUCACAO reported solid returns over the last few months and may actually be approaching a breakup point.

CHINA EAST ED

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CHINA EAST ED are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CHINA EAST reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with COGNA EDUCACAO and CHINA EAST

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

The idea behind COGNA EDUCACAO SPADR and CHINA EAST ED 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.