Can any of the company-specific risk be diversified away by investing in both Marfrig Global and VBLT Old 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 Marfrig Global and VBLT Old into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Marfrig Global Foods and VBLT Old, you can compare the effects of market volatilities on Marfrig Global and VBLT Old 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 Marfrig Global with a short position of VBLT Old. Check out your portfolio center. Please also check ongoing floating volatility patterns of Marfrig Global and VBLT Old.
Diversification Opportunities for Marfrig Global and VBLT Old
The 3 months correlation between Marfrig and VBLT is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Marfrig Global Foods and VBLT Old in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VBLT Old and Marfrig Global 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 Marfrig Global Foods are associated (or correlated) with VBLT Old. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VBLT Old has no effect on the direction of Marfrig Global i.e., Marfrig Global and VBLT Old go up and down completely randomly.
Pair Corralation between Marfrig Global and VBLT Old
If you would invest 132.00 in Marfrig Global Foods on September 7, 2023 and sell it today you would earn a total of 56.00 from holding Marfrig Global Foods or generate 42.42% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Marfrig Global Foods are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Marfrig Global showed solid returns over the last few months and may actually be approaching a breakup point.
Over the last 90 days VBLT Old has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's essential indicators remain comparatively stable which may send shares a bit higher in January 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.
The main advantage of trading using opposite Marfrig Global and VBLT Old positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Marfrig Global position performs unexpectedly, VBLT Old 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 VBLT Old will offset losses from the drop in VBLT Old's long position.
The idea behind Marfrig Global Foods and VBLT Old 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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