Correlation Between Basic Materials and Faria Lima
Can any of the company-specific risk be diversified away by investing in both Basic Materials and Faria Lima 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 Basic Materials and Faria Lima into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Basic Materials and Faria Lima Capital, you can compare the effects of market volatilities on Basic Materials and Faria Lima 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 Basic Materials with a short position of Faria Lima. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and Faria Lima.
Diversification Opportunities for Basic Materials and Faria Lima
-0.51 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Basic and Faria is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and Faria Lima Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Faria Lima Capital and Basic Materials 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 Basic Materials are associated (or correlated) with Faria Lima. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Faria Lima Capital has no effect on the direction of Basic Materials i.e., Basic Materials and Faria Lima go up and down completely randomly.
Pair Corralation between Basic Materials and Faria Lima
Assuming the 90 days trading horizon Basic Materials is expected to generate 1.97 times more return on investment than Faria Lima. However, Basic Materials is 1.97 times more volatile than Faria Lima Capital. It trades about 0.07 of its potential returns per unit of risk. Faria Lima Capital is currently generating about -0.02 per unit of risk. If you would invest 536,532 in Basic Materials on August 31, 2024 and sell it today you would earn a total of 50,878 from holding Basic Materials or generate 9.48% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 99.22% |
| Values | Daily Returns |
Basic Materials vs. Faria Lima Capital
Performance |
| Timeline |
Basic Materials and Faria Lima Volatility Contrast
Predicted Return Density |
| Returns |
Basic Materials
Pair trading matchups for Basic Materials
Faria Lima Capital
Pair trading matchups for Faria Lima
Pair Trading with Basic Materials and Faria Lima
The main advantage of trading using opposite Basic Materials and Faria Lima positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Basic Materials position performs unexpectedly, Faria Lima 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 Faria Lima will offset losses from the drop in Faria Lima's long position.| Basic Materials vs. Micron Technology | Basic Materials vs. Ross Stores | Basic Materials vs. Monster Beverage | Basic Materials vs. TAL Education Group |
| Faria Lima vs. Energisa SA | Faria Lima vs. BTG Pactual Logstica | Faria Lima vs. Plano Plano Desenvolvimento | Faria Lima vs. Companhia Habitasul de |
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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.
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