Correlation Between Vidrala SA and Faes Farma

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

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

Diversification Opportunities for Vidrala SA and Faes Farma

-0.34

Correlation Coefficient

Vidrala SA  Faes Farma

Very good diversification

The 3 months correlation between Vidrala and Faes is -0.34. Overlapping area represents the amount of risk that can be diversified away by holding Vidrala SA and Faes Farma SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faes Farma SA and Vidrala SA 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 Vidrala SA are associated (or correlated) with Faes Farma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faes Farma SA has no effect on the direction of Vidrala SA i.e., Vidrala SA and Faes Farma go up and down completely randomly.

Pair Corralation between Vidrala SA and Faes Farma

Assuming the 90 days trading horizon Vidrala SA is expected to generate 2.12 times more return on investment than Faes Farma. However, Vidrala SA is 2.12 times more volatile than Faes Farma SA. It trades about 0.04 of its potential returns per unit of risk. Faes Farma SA is currently generating about -0.05 per unit of risk. If you would invest  9,076  in Vidrala SA on September 5, 2024 and sell it today you would earn a total of  324.00  from holding Vidrala SA or generate 3.57% return on investment over 90 days.

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

Vidrala SA  vs.  Faes Farma SA

Vidrala SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vidrala SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Vidrala SA is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Faes Farma SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Faes Farma SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Faes Farma is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vidrala SA and Faes Farma

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

The idea behind Vidrala SA and Faes Farma 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.

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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 Transaction History module to view history of all your transactions and understand their impact on performance.