Correlation Between FUNDO DE and Loft II

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

By analyzing existing cross correlation between FUNDO DE INVESTIMENTO and Loft II Fundo, you can compare the effects of market volatilities on FUNDO DE and Loft II 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 FUNDO DE with a short position of Loft II. Check out your portfolio center. Please also check ongoing floating volatility patterns of FUNDO DE and Loft II.

Diversification Opportunities for FUNDO DE and Loft II

0.79

Correlation Coefficient

FUNDO DE  Loft II

Poor diversification

The 24 months correlation between FUNDO and Loft is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding FUNDO DE INVESTIMENTO and Loft II Fundo in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Loft II Fundo and FUNDO DE 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 FUNDO DE INVESTIMENTO are associated (or correlated) with Loft II. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Loft II Fundo has no effect on the direction of FUNDO DE i.e., FUNDO DE and Loft II go up and down completely randomly.

Pair Corralation between FUNDO DE and Loft II

Assuming the 90 days trading horizon FUNDO DE INVESTIMENTO is expected to generate 0.11 times more return on investment than Loft II. However, FUNDO DE INVESTIMENTO is 9.06 times less risky than Loft II. It trades about 0.22 of its potential returns per unit of risk. Loft II Fundo is currently generating about -0.03 per unit of risk. If you would invest  943.00  in FUNDO DE INVESTIMENTO on February 22, 2024 and sell it today you would earn a total of  40.00  from holding FUNDO DE INVESTIMENTO or generate 4.24% return on investment over 90 days.

Time Period	24 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

FUNDO DE INVESTIMENTO  vs.  Loft II Fundo

FUNDO DE INVESTIMENTO

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days FUNDO DE INVESTIMENTO has generated negative risk-adjusted returns adding no value to fund investors. Despite latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Loft II Fundo

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Loft II Fundo has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, Loft II is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with FUNDO DE and Loft II

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

The idea behind FUNDO DE INVESTIMENTO and Loft II Fundo 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.