Correlation Between Raia Drogasil and BRF SA

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

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

Diversification Opportunities for Raia Drogasil and BRF SA

0.25

Correlation Coefficient

Raia Drogasil  BRF SA

Modest diversification

The 3 months correlation between Raia and BRF is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Raia Drogasil SA and BRF SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BRF SA and Raia Drogasil 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 Raia Drogasil SA are associated (or correlated) with BRF SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BRF SA has no effect on the direction of Raia Drogasil i.e., Raia Drogasil and BRF SA go up and down completely randomly.

Pair Corralation between Raia Drogasil and BRF SA

Assuming the 90 days trading horizon Raia Drogasil SA is expected to under-perform the BRF SA. But the stock apears to be less risky and, when comparing its historical volatility, Raia Drogasil SA is 1.4 times less risky than BRF SA. The stock trades about -0.12 of its potential returns per unit of risk. The BRF SA is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,491  in BRF SA on September 4, 2024 and sell it today you would lose (10.00) from holding BRF SA or give up 0.4% of portfolio value over 90 days.

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

Raia Drogasil SA  vs.  BRF SA

Raia Drogasil SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Raia Drogasil SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the 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.

BRF SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BRF SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, BRF SA 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 Raia Drogasil and BRF SA

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

The idea behind Raia Drogasil SA and BRF 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.

Check out your portfolio center.

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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.