Correlation Between Companhia Brasileira and Nordstrom

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

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

Diversification Opportunities for Companhia Brasileira and Nordstrom

0.01

Correlation Coefficient

Companhia Brasileira  Nordstrom

Significant diversification

The 3 months correlation between Companhia and Nordstrom is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Companhia Brasileira de and Nordstrom in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nordstrom and Companhia Brasileira 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 Companhia Brasileira de are associated (or correlated) with Nordstrom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nordstrom has no effect on the direction of Companhia Brasileira i.e., Companhia Brasileira and Nordstrom go up and down completely randomly.

Pair Corralation between Companhia Brasileira and Nordstrom

Considering the 90-day investment horizon Companhia Brasileira de is expected to under-perform the Nordstrom. In addition to that, Companhia Brasileira is 1.2 times more volatile than Nordstrom. It trades about -0.53 of its total potential returns per unit of risk. Nordstrom is currently generating about -0.08 per unit of volatility. If you would invest  2,027  in Nordstrom on January 28, 2024 and sell it today you would lose (114.00) from holding Nordstrom or give up 5.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	80.95%
Values	Daily Returns

Companhia Brasileira de  vs.  Nordstrom

Companhia Brasileira

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Brasileira de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Stock's fundamental drivers remain rather sound which may send shares a bit higher in May 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Nordstrom

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Nordstrom are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Nordstrom is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Companhia Brasileira and Nordstrom

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

The idea behind Companhia Brasileira de and Nordstrom 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.