Correlation Between Banco Do and Localiza Rent

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Can any of the company-specific risk be diversified away by investing in both Banco Do and Localiza Rent 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 Banco Do and Localiza Rent into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Banco Do Brasil and Localiza Rent A, you can compare the effects of market volatilities on Banco Do and Localiza Rent 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 Banco Do with a short position of Localiza Rent. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco Do and Localiza Rent.

Diversification Opportunities for Banco Do and Localiza Rent

0.48
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Banco and Localiza is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Banco Do Brasil and Localiza Rent A in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Localiza Rent A and Banco Do 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 Banco Do Brasil are associated (or correlated) with Localiza Rent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Localiza Rent A has no effect on the direction of Banco Do i.e., Banco Do and Localiza Rent go up and down completely randomly.

Pair Corralation between Banco Do and Localiza Rent

Assuming the 90 days trading horizon Banco Do Brasil is expected to generate 0.64 times more return on investment than Localiza Rent. However, Banco Do Brasil is 1.56 times less risky than Localiza Rent. It trades about -0.03 of its potential returns per unit of risk. Localiza Rent A is currently generating about -0.35 per unit of risk. If you would invest  3,550  in Banco Do Brasil on September 11, 2022 and sell it today you would lose (52.00)  from holding Banco Do Brasil or give up 1.46% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Banco Do Brasil  vs.  Localiza Rent A

 Performance (%) 
       Timeline  
Banco Do Brasil 
Banco Performance
0 of 100
Over the last 90 days Banco Do Brasil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Banco Price Channel

Localiza Rent A 
Localiza Performance
0 of 100
Over the last 90 days Localiza Rent A has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in January 2023. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Localiza Price Channel

Banco Do and Localiza Rent Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Banco Do and Localiza Rent

The main advantage of trading using opposite Banco Do and Localiza Rent positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Banco Do position performs unexpectedly, Localiza Rent 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 Localiza Rent will offset losses from the drop in Localiza Rent's long position.
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The idea behind Banco Do Brasil and Localiza Rent A 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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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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