Correlation Between Magazine Luiza and Oi SA

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

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

Diversification Opportunities for Magazine Luiza and Oi SA

0.48

Correlation Coefficient

Magazine Luiza  Oi SA

Very weak diversification

The 3 months correlation between Magazine and OIBR4 is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Magazine Luiza SA and Oi SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oi SA and Magazine Luiza 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 Magazine Luiza SA are associated (or correlated) with Oi SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oi SA has no effect on the direction of Magazine Luiza i.e., Magazine Luiza and Oi SA go up and down completely randomly.

Pair Corralation between Magazine Luiza and Oi SA

Assuming the 90 days trading horizon Magazine Luiza SA is expected to under-perform the Oi SA. But the stock apears to be less risky and, when comparing its historical volatility, Magazine Luiza SA is 1.4 times less risky than Oi SA. The stock trades about -0.11 of its potential returns per unit of risk. The Oi SA is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,210  in Oi SA on September 2, 2024 and sell it today you would lose (157.00) from holding Oi SA or give up 12.98% of portfolio value over 90 days.

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

Magazine Luiza SA  vs.  Oi SA

Magazine Luiza SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Magazine Luiza 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.

Oi SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Oi SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Preferred Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Magazine Luiza and Oi SA

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

The idea behind Magazine Luiza SA and Oi 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.