Correlation Between Natura Co and KMBB34

Can any of the company-specific risk be diversified away by investing in both Natura Co and KMBB34 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 Natura Co and KMBB34 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Natura Co Holding and KMBB34, you can compare the effects of market volatilities on Natura Co and KMBB34 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 Natura Co with a short position of KMBB34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Natura Co and KMBB34.

Diversification Opportunities for Natura Co and KMBB34

-0.21

Correlation Coefficient

Natura Co  KMBB34

Very good diversification

The 3 months correlation between Natura and KMBB34 is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Natura Co Holding and KMBB34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KMBB34 and Natura Co 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 Natura Co Holding are associated (or correlated) with KMBB34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KMBB34 has no effect on the direction of Natura Co i.e., Natura Co and KMBB34 go up and down completely randomly.

Pair Corralation between Natura Co and KMBB34

Assuming the 90 days trading horizon Natura Co is expected to generate 4.77 times less return on investment than KMBB34. In addition to that, Natura Co is 2.1 times more volatile than KMBB34. It trades about 0.01 of its total potential returns per unit of risk. KMBB34 is currently generating about 0.09 per unit of volatility. If you would invest  76,852  in KMBB34 on September 23, 2024 and sell it today you would earn a total of  5,468  from holding KMBB34 or generate 7.11% return on investment over 90 days.

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

Natura Co Holding  vs.  KMBB34

Natura Co Holding

Risk-Adjusted Performance

0 of 100

Very Weak

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

KMBB34

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in KMBB34 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, KMBB34 may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Natura Co and KMBB34

The main advantage of trading using opposite Natura Co and KMBB34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Natura Co position performs unexpectedly, KMBB34 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 KMBB34 will offset losses from the drop in KMBB34's long position.

The idea behind Natura Co Holding and KMBB34 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.