Correlation Between METISA Metalrgica and Iochpe Maxion

Can any of the company-specific risk be diversified away by investing in both METISA Metalrgica and Iochpe Maxion 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 METISA Metalrgica and Iochpe Maxion into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for METISA Metalrgica and Iochpe Maxion

0.03

Correlation Coefficient

METISA Metalrgica  Iochpe Maxion

Significant diversification

The 3 months correlation between METISA and Iochpe is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding METISA Metalrgica Timboense and Iochpe Maxion SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iochpe Maxion SA and METISA Metalrgica 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 METISA Metalrgica Timboense are associated (or correlated) with Iochpe Maxion. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iochpe Maxion SA has no effect on the direction of METISA Metalrgica i.e., METISA Metalrgica and Iochpe Maxion go up and down completely randomly.

Pair Corralation between METISA Metalrgica and Iochpe Maxion

Assuming the 90 days trading horizon METISA Metalrgica Timboense is expected to under-perform the Iochpe Maxion. But the preferred stock apears to be less risky and, when comparing its historical volatility, METISA Metalrgica Timboense is 1.03 times less risky than Iochpe Maxion. The preferred stock trades about -0.1 of its potential returns per unit of risk. The Iochpe Maxion SA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,109  in Iochpe Maxion SA on August 31, 2024 and sell it today you would earn a total of  31.00  from holding Iochpe Maxion SA or generate 2.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

METISA Metalrgica Timboense  vs.  Iochpe Maxion SA

METISA Metalrgica

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days METISA Metalrgica Timboense 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 Preferred Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Iochpe Maxion SA

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Iochpe Maxion SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Iochpe Maxion 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 METISA Metalrgica and Iochpe Maxion

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

The idea behind METISA Metalrgica Timboense and Iochpe Maxion 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.