Correlation Between IRB Brasil and Oi SA
Can any of the company-specific risk be diversified away by investing in both IRB Brasil and Oi SA 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 Oi SA 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 Oi SA, you can compare the effects of market volatilities on IRB Brasil and Oi SA 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 Oi SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of IRB Brasil and Oi SA.
Diversification Opportunities for IRB Brasil and Oi SA
0.65 | Correlation Coefficient |
Poor diversification
The 3 months correlation between IRB and OIBR4 is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding IRB Brasil Resseguros SA and Oi SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oi 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 Oi SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oi SA has no effect on the direction of IRB Brasil i.e., IRB Brasil and Oi SA go up and down completely randomly.
Pair Corralation between IRB Brasil and Oi SA
Assuming the 90 days trading horizon IRB Brasil Resseguros SA is expected to under-perform the Oi SA. But the stock apears to be less risky and, when comparing its historical volatility, IRB Brasil Resseguros SA is 2.88 times less risky than Oi SA. The stock trades about -0.02 of its potential returns per unit of risk. The Oi SA is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 1,120 in Oi SA on September 2, 2024 and sell it today you would lose (67.00) from holding Oi SA or give up 5.98% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
IRB Brasil Resseguros SA vs. Oi SA
Performance |
| Timeline |
| IRB Brasil Resseguros |
| Oi SA |
IRB Brasil and Oi SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IRB Brasil and Oi SA
The main advantage of trading using opposite IRB Brasil and Oi SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IRB Brasil position performs unexpectedly, Oi SA 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 Oi SA will offset losses from the drop in Oi SA's long position.| IRB Brasil vs. Banco Bradesco SA | IRB Brasil vs. Petrleo Brasileiro SA | IRB Brasil vs. Ita Unibanco Holding | IRB Brasil vs. Itasa Investimentos |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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