Correlation Between So Martinho and Tootsie Roll

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

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

Diversification Opportunities for So Martinho and Tootsie Roll

-0.54

Correlation Coefficient

So Martinho  Tootsie Roll

Excellent diversification

The 3 months correlation between SMTO3 and Tootsie is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding So Martinho SA and Tootsie Roll Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tootsie Roll Industries and So Martinho 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 So Martinho SA are associated (or correlated) with Tootsie Roll. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tootsie Roll Industries has no effect on the direction of So Martinho i.e., So Martinho and Tootsie Roll go up and down completely randomly.

Pair Corralation between So Martinho and Tootsie Roll

Assuming the 90 days trading horizon So Martinho SA is expected to under-perform the Tootsie Roll. In addition to that, So Martinho is 1.38 times more volatile than Tootsie Roll Industries. It trades about -0.04 of its total potential returns per unit of risk. Tootsie Roll Industries is currently generating about 0.1 per unit of volatility. If you would invest  3,068  in Tootsie Roll Industries on September 4, 2024 and sell it today you would earn a total of  255.00  from holding Tootsie Roll Industries or generate 8.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

So Martinho SA  vs.  Tootsie Roll Industries

So Martinho SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Tootsie Roll Industries

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tootsie Roll Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Tootsie Roll may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with So Martinho and Tootsie Roll

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

The idea behind So Martinho SA and Tootsie Roll Industries 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.