Correlation Between Localiza Rent and Fortress Transp

Can any of the company-specific risk be diversified away by investing in both Localiza Rent and Fortress Transp 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 Localiza Rent and Fortress Transp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Localiza Rent A and Fortress Transp Infra, you can compare the effects of market volatilities on Localiza Rent and Fortress Transp 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 Localiza Rent with a short position of Fortress Transp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Localiza Rent and Fortress Transp.

Diversification Opportunities for Localiza Rent and Fortress Transp

-0.17

Correlation Coefficient

Localiza Rent  Fortress Transp

Good diversification

The 3 months correlation between Localiza and Fortress is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Localiza Rent A and Fortress Transp Infra in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortress Transp Infra and Localiza Rent 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 Localiza Rent A are associated (or correlated) with Fortress Transp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortress Transp Infra has no effect on the direction of Localiza Rent i.e., Localiza Rent and Fortress Transp go up and down completely randomly.

Pair Corralation between Localiza Rent and Fortress Transp

Assuming the 90 days horizon Localiza Rent A is expected to under-perform the Fortress Transp. In addition to that, Localiza Rent is 1.34 times more volatile than Fortress Transp Infra. It trades about -0.07 of its total potential returns per unit of risk. Fortress Transp Infra is currently generating about 0.21 per unit of volatility. If you would invest  11,918  in Fortress Transp Infra on September 4, 2024 and sell it today you would earn a total of  4,762  from holding Fortress Transp Infra or generate 39.96% return on investment over 90 days.

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

Localiza Rent A  vs.  Fortress Transp Infra

Localiza Rent A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Localiza Rent A has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Fortress Transp Infra

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fortress Transp Infra are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Fortress Transp demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Localiza Rent and Fortress Transp

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

The idea behind Localiza Rent A and Fortress Transp Infra 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.