Correlation Between Braskem SA and Valhi

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

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

Diversification Opportunities for Braskem SA and Valhi

0.63

Correlation Coefficient

Braskem SA  Valhi

Poor diversification

The 3 months correlation between Braskem and Valhi is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Braskem SA Class and Valhi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valhi Inc and Braskem SA 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 Braskem SA Class are associated (or correlated) with Valhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valhi Inc has no effect on the direction of Braskem SA i.e., Braskem SA and Valhi go up and down completely randomly.

Pair Corralation between Braskem SA and Valhi

Considering the 90-day investment horizon Braskem SA Class is expected to under-perform the Valhi. But the stock apears to be less risky and, when comparing its historical volatility, Braskem SA Class is 1.87 times less risky than Valhi. The stock trades about 0.0 of its potential returns per unit of risk. The Valhi Inc is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  1,820  in Valhi Inc on July 23, 2024 and sell it today you would earn a total of  1,839  from holding Valhi Inc or generate 101.04% return on investment over 90 days.

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

Braskem SA Class  vs.  Valhi Inc

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 recent stock price mess, may contribute to short-term losses for the institutional investors.

Valhi Inc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Valhi Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating technical indicators, Valhi demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Braskem SA and Valhi

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

The idea behind Braskem SA Class and Valhi Inc 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.