Correlation Between Valhi and Braskem SA

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

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

Diversification Opportunities for Valhi and Braskem SA

0.65

Correlation Coefficient

Valhi  Braskem SA

Poor diversification

The 3 months correlation between Valhi and Braskem is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc and Braskem SA Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Braskem SA Class and Valhi 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 Valhi Inc are associated (or correlated) with Braskem SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Braskem SA Class has no effect on the direction of Valhi i.e., Valhi and Braskem SA go up and down completely randomly.

Pair Corralation between Valhi and Braskem SA

Considering the 90-day investment horizon Valhi is expected to generate 1.42 times less return on investment than Braskem SA. But when comparing it to its historical volatility, Valhi Inc is 1.26 times less risky than Braskem SA. It trades about 0.03 of its potential returns per unit of risk. Braskem SA Class is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  629.00  in Braskem SA Class on February 16, 2024 and sell it today you would earn a total of  121.00  from holding Braskem SA Class or generate 19.24% return on investment over 90 days.

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

Valhi Inc  vs.  Braskem SA Class

Valhi Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Valhi Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, Valhi demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Braskem SA Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Braskem SA Class has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Braskem SA is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Valhi and Braskem SA

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

The idea behind Valhi Inc and Braskem SA Class 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.