Correlation Between Xp and Royalty Management

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

By analyzing existing cross correlation between Xp Inc and Royalty Management Holding, you can compare the effects of market volatilities on Xp and Royalty Management 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 Xp with a short position of Royalty Management. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xp and Royalty Management.

Diversification Opportunities for Xp and Royalty Management

-0.35

Correlation Coefficient

Xp  Royalty Management

Very good diversification

The 3 months correlation between Xp and Royalty is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Xp Inc and Royalty Management Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royalty Management and Xp 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 Xp Inc are associated (or correlated) with Royalty Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royalty Management has no effect on the direction of Xp i.e., Xp and Royalty Management go up and down completely randomly.

Pair Corralation between Xp and Royalty Management

Allowing for the 90-day total investment horizon Xp Inc is expected to under-perform the Royalty Management. But the stock apears to be less risky and, when comparing its historical volatility, Xp Inc is 1.94 times less risky than Royalty Management. The stock trades about -0.32 of its potential returns per unit of risk. The Royalty Management Holding is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  100.00  in Royalty Management Holding on September 28, 2024 and sell it today you would lose (8.01) from holding Royalty Management Holding or give up 8.01% of portfolio value over 90 days.

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

Xp Inc  vs.  Royalty Management Holding

Xp Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xp Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with abnormal performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Royalty Management

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Royalty Management Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy fundamental indicators, Royalty Management is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Xp and Royalty Management

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

The idea behind Xp Inc and Royalty Management Holding 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.