Correlation Between M Dias and Direcional Engenharia

Can any of the company-specific risk be diversified away by investing in both M Dias and Direcional Engenharia 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 M Dias and Direcional Engenharia into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for M Dias and Direcional Engenharia

0.53

Correlation Coefficient

M Dias  Direcional Engenharia

Very weak diversification

The 3 months correlation between MDIA3 and Direcional is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding M Dias Branco and Direcional Engenharia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direcional Engenharia and M Dias 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 M Dias Branco are associated (or correlated) with Direcional Engenharia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direcional Engenharia has no effect on the direction of M Dias i.e., M Dias and Direcional Engenharia go up and down completely randomly.

Pair Corralation between M Dias and Direcional Engenharia

Assuming the 90 days trading horizon M Dias Branco is expected to under-perform the Direcional Engenharia. In addition to that, M Dias is 1.13 times more volatile than Direcional Engenharia SA. It trades about -0.14 of its total potential returns per unit of risk. Direcional Engenharia SA is currently generating about -0.02 per unit of volatility. If you would invest  3,192  in Direcional Engenharia SA on September 12, 2024 and sell it today you would lose (106.00) from holding Direcional Engenharia SA or give up 3.32% of portfolio value over 90 days.

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

M Dias Branco  vs.  Direcional Engenharia SA

M Dias Branco

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days M Dias Branco 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.

Direcional Engenharia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direcional Engenharia SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Direcional Engenharia is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with M Dias and Direcional Engenharia

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

The idea behind M Dias Branco and Direcional Engenharia 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.