Correlation Between Afya and Cogna Educacao

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

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

Diversification Opportunities for Afya and Cogna Educacao

0.69

Correlation Coefficient

Afya  Cogna Educacao

Poor diversification

The 3 months correlation between Afya and Cogna is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Afya and Cogna Educacao SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cogna Educacao SA and Afya 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 Afya are associated (or correlated) with Cogna Educacao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cogna Educacao SA has no effect on the direction of Afya i.e., Afya and Cogna Educacao go up and down completely randomly.

Pair Corralation between Afya and Cogna Educacao

Given the investment horizon of 90 days Afya is expected to under-perform the Cogna Educacao. But the stock apears to be less risky and, when comparing its historical volatility, Afya is 2.77 times less risky than Cogna Educacao. The stock trades about -0.11 of its potential returns per unit of risk. The Cogna Educacao SA is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  51.00  in Cogna Educacao SA on February 5, 2024 and sell it today you would lose (1.00) from holding Cogna Educacao SA or give up 1.96% of portfolio value over 90 days.

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

Afya  vs.  Cogna Educacao SA

Afya

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Afya has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Cogna Educacao SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Cogna Educacao SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Cogna Educacao showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Afya and Cogna Educacao

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

The idea behind Afya and Cogna Educacao SA 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.