Correlation Between Porto Seguro and K1RC34

Can any of the company-specific risk be diversified away by investing in both Porto Seguro and K1RC34 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 Porto Seguro and K1RC34 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Porto Seguro SA and K1RC34, you can compare the effects of market volatilities on Porto Seguro and K1RC34 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 Porto Seguro with a short position of K1RC34. Check out your portfolio center. Please also check ongoing floating volatility patterns of Porto Seguro and K1RC34.

Diversification Opportunities for Porto Seguro and K1RC34

0.43

Correlation Coefficient

Porto Seguro  K1RC34

Very weak diversification

The 3 months correlation between Porto and K1RC34 is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Porto Seguro SA and K1RC34 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on K1RC34 and Porto Seguro 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 Porto Seguro SA are associated (or correlated) with K1RC34. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of K1RC34 has no effect on the direction of Porto Seguro i.e., Porto Seguro and K1RC34 go up and down completely randomly.

Pair Corralation between Porto Seguro and K1RC34

Assuming the 90 days trading horizon Porto Seguro is expected to generate 1.73 times less return on investment than K1RC34. But when comparing it to its historical volatility, Porto Seguro SA is 1.59 times less risky than K1RC34. It trades about 0.14 of its potential returns per unit of risk. K1RC34 is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  27,273  in K1RC34 on September 26, 2024 and sell it today you would earn a total of  10,689  from holding K1RC34 or generate 39.19% return on investment over 90 days.

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

Porto Seguro SA  vs.  K1RC34

Porto Seguro SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Porto Seguro SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Porto Seguro is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

K1RC34

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in K1RC34 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, K1RC34 sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Porto Seguro and K1RC34

The main advantage of trading using opposite Porto Seguro and K1RC34 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Porto Seguro position performs unexpectedly, K1RC34 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 K1RC34 will offset losses from the drop in K1RC34's long position.

The idea behind Porto Seguro SA and K1RC34 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.