Correlation Between COGNA EDUCACAO and Laureate Education
Can any of the company-specific risk be diversified away by investing in both COGNA EDUCACAO and Laureate Education 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 COGNA EDUCACAO and Laureate Education into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between COGNA EDUCACAO SPADR and Laureate Education, you can compare the effects of market volatilities on COGNA EDUCACAO and Laureate Education 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 COGNA EDUCACAO with a short position of Laureate Education. Check out your portfolio center. Please also check ongoing floating volatility patterns of COGNA EDUCACAO and Laureate Education.
Diversification Opportunities for COGNA EDUCACAO and Laureate Education
-0.02 | Correlation Coefficient |
Good diversification
The 3 months correlation between COGNA and Laureate is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding COGNA EDUCACAO SPADR and Laureate Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Laureate Education and COGNA EDUCACAO 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 COGNA EDUCACAO SPADR are associated (or correlated) with Laureate Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Laureate Education has no effect on the direction of COGNA EDUCACAO i.e., COGNA EDUCACAO and Laureate Education go up and down completely randomly.
Pair Corralation between COGNA EDUCACAO and Laureate Education
Assuming the 90 days trading horizon COGNA EDUCACAO SPADR is expected to generate 5.53 times more return on investment than Laureate Education. However, COGNA EDUCACAO is 5.53 times more volatile than Laureate Education. It trades about 0.05 of its potential returns per unit of risk. Laureate Education is currently generating about 0.1 per unit of risk. If you would invest 32.00 in COGNA EDUCACAO SPADR on September 4, 2024 and sell it today you would lose (4.00) from holding COGNA EDUCACAO SPADR or give up 12.5% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
COGNA EDUCACAO SPADR vs. Laureate Education
Performance |
| Timeline |
| COGNA EDUCACAO SPADR |
| Laureate Education |
COGNA EDUCACAO and Laureate Education Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with COGNA EDUCACAO and Laureate Education
The main advantage of trading using opposite COGNA EDUCACAO and Laureate Education positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if COGNA EDUCACAO position performs unexpectedly, Laureate Education 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 Laureate Education will offset losses from the drop in Laureate Education's long position.The idea behind COGNA EDUCACAO SPADR and Laureate Education 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.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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.
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