Correlation Between IRB Brasil and Magazine Luiza
Can any of the company-specific risk be diversified away by investing in both IRB Brasil and Magazine Luiza 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 IRB Brasil and Magazine Luiza into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IRB Brasil Resseguros SA and Magazine Luiza SA, you can compare the effects of market volatilities on IRB Brasil and Magazine Luiza 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 IRB Brasil with a short position of Magazine Luiza. Check out your portfolio center. Please also check ongoing floating volatility patterns of IRB Brasil and Magazine Luiza.
Diversification Opportunities for IRB Brasil and Magazine Luiza
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between IRB and Magazine is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding IRB Brasil Resseguros SA and Magazine Luiza SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Magazine Luiza SA and IRB Brasil 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 IRB Brasil Resseguros SA are associated (or correlated) with Magazine Luiza. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Magazine Luiza SA has no effect on the direction of IRB Brasil i.e., IRB Brasil and Magazine Luiza go up and down completely randomly.
Pair Corralation between IRB Brasil and Magazine Luiza
Assuming the 90 days trading horizon IRB Brasil is expected to generate 7.07 times less return on investment than Magazine Luiza. But when comparing it to its historical volatility, IRB Brasil Resseguros SA is 10.2 times less risky than Magazine Luiza. It trades about 0.05 of its potential returns per unit of risk. Magazine Luiza SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest 2,940 in Magazine Luiza SA on August 28, 2024 and sell it today you would lose (1,939) from holding Magazine Luiza SA or give up 65.95% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
IRB Brasil Resseguros SA vs. Magazine Luiza SA
Performance |
| Timeline |
| IRB Brasil Resseguros |
| Magazine Luiza SA |
IRB Brasil and Magazine Luiza Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IRB Brasil and Magazine Luiza
The main advantage of trading using opposite IRB Brasil and Magazine Luiza positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IRB Brasil position performs unexpectedly, Magazine Luiza 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 Magazine Luiza will offset losses from the drop in Magazine Luiza's long position.| IRB Brasil vs. Banco Alfa de | IRB Brasil vs. Financeira Alfa SA | IRB Brasil vs. Banco Alfa de | IRB Brasil vs. Financeira Alfa SA |
| Magazine Luiza vs. Baidu Inc | Magazine Luiza vs. Deutsche Bank Aktiengesellschaft | Magazine Luiza vs. HSBC Holdings plc | Magazine Luiza vs. The Bank of |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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