Correlation Between Inapa Inv and EDP Renovaveis

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

By analyzing existing cross correlation between Inapa Inv and EDP Renovaveis, you can compare the effects of market volatilities on Inapa Inv and EDP Renovaveis 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 Inapa Inv with a short position of EDP Renovaveis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Inapa Inv and EDP Renovaveis.

Diversification Opportunities for Inapa Inv and EDP Renovaveis

0.67

Correlation Coefficient

Inapa Inv  EDP Renovaveis

Poor diversification

The 3 months correlation between Inapa and EDP is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Inapa Inv and EDP Renovaveis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Renovaveis and Inapa Inv 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 Inapa Inv are associated (or correlated) with EDP Renovaveis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Renovaveis has no effect on the direction of Inapa Inv i.e., Inapa Inv and EDP Renovaveis go up and down completely randomly.

Pair Corralation between Inapa Inv and EDP Renovaveis

Assuming the 90 days trading horizon Inapa Inv is expected to generate 1.04 times more return on investment than EDP Renovaveis. However, Inapa Inv is 1.04 times more volatile than EDP Renovaveis. It trades about 0.07 of its potential returns per unit of risk. EDP Renovaveis is currently generating about 0.03 per unit of risk. If you would invest  3.32  in Inapa Inv on January 25, 2024 and sell it today you would earn a total of  0.08  from holding Inapa Inv or generate 2.41% return on investment over 90 days.

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

Inapa Inv  vs.  EDP Renovaveis

Inapa Inv

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Inapa Inv has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

EDP Renovaveis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Renovaveis has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Inapa Inv and EDP Renovaveis

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

The idea behind Inapa Inv and EDP Renovaveis 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.