Correlation Between IShares BMFBovespa and PPLA Participations

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

By analyzing existing cross correlation between iShares BMFBovespa Small and PPLA Participations, you can compare the effects of market volatilities on IShares BMFBovespa and PPLA Participations 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 IShares BMFBovespa with a short position of PPLA Participations. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares BMFBovespa and PPLA Participations.

Diversification Opportunities for IShares BMFBovespa and PPLA Participations

0.62

Correlation Coefficient

IShares BMFBovespa  PPLA Participations

Poor diversification

The 3 months correlation between IShares and PPLA is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding iShares BMFBovespa Small and PPLA Participations in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PPLA Participations and IShares BMFBovespa 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 iShares BMFBovespa Small are associated (or correlated) with PPLA Participations. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PPLA Participations has no effect on the direction of IShares BMFBovespa i.e., IShares BMFBovespa and PPLA Participations go up and down completely randomly.

Pair Corralation between IShares BMFBovespa and PPLA Participations

Assuming the 90 days trading horizon iShares BMFBovespa Small is expected to generate 0.28 times more return on investment than PPLA Participations. However, iShares BMFBovespa Small is 3.59 times less risky than PPLA Participations. It trades about -0.04 of its potential returns per unit of risk. PPLA Participations is currently generating about -0.06 per unit of risk. If you would invest  10,115  in iShares BMFBovespa Small on September 12, 2024 and sell it today you would lose (465.00) from holding iShares BMFBovespa Small or give up 4.6% of portfolio value over 90 days.

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

iShares BMFBovespa Small  vs.  PPLA Participations

iShares BMFBovespa Small

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares BMFBovespa Small has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares BMFBovespa is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PPLA Participations

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PPLA Participations has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Etf's essential indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Pair Trading with IShares BMFBovespa and PPLA Participations

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

The idea behind iShares BMFBovespa Small and PPLA Participations 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.