Correlation Between LPS Brasil and PBG SA

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

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

Diversification Opportunities for LPS Brasil and PBG SA

0.71

Correlation Coefficient

LPS Brasil  PBG SA

Poor diversification

The 3 months correlation between LPS and PBG is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding LPS Brasil and PBG SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PBG SA and LPS Brasil 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 LPS Brasil are associated (or correlated) with PBG SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PBG SA has no effect on the direction of LPS Brasil i.e., LPS Brasil and PBG SA go up and down completely randomly.

Pair Corralation between LPS Brasil and PBG SA

Assuming the 90 days trading horizon LPS Brasil is expected to generate 0.87 times more return on investment than PBG SA. However, LPS Brasil is 1.15 times less risky than PBG SA. It trades about -0.09 of its potential returns per unit of risk. PBG SA is currently generating about -0.11 per unit of risk. If you would invest  176.00  in LPS Brasil on September 17, 2024 and sell it today you would lose (28.00) from holding LPS Brasil or give up 15.91% of portfolio value over 90 days.

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

LPS Brasil   vs.  PBG SA

LPS Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LPS Brasil 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 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.

PBG SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PBG 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 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 LPS Brasil and PBG SA

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

The idea behind LPS Brasil and PBG 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.

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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.