Correlation Between SEI Investments and Companhia

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

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

Diversification Opportunities for SEI Investments and Companhia

-0.64

Correlation Coefficient

SEI Investments  Companhia

Excellent diversification

The 3 months correlation between SEI and Companhia is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding SEI Investments and Companhia de Saneamento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Saneamento and SEI Investments 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 SEI Investments are associated (or correlated) with Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Saneamento has no effect on the direction of SEI Investments i.e., SEI Investments and Companhia go up and down completely randomly.

Pair Corralation between SEI Investments and Companhia

Given the investment horizon of 90 days SEI Investments is expected to generate 0.66 times more return on investment than Companhia. However, SEI Investments is 1.52 times less risky than Companhia. It trades about 0.13 of its potential returns per unit of risk. Companhia de Saneamento is currently generating about 0.06 per unit of risk. If you would invest  5,715  in SEI Investments on August 19, 2024 and sell it today you would earn a total of  2,308  from holding SEI Investments or generate 40.38% return on investment over 90 days.

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

SEI Investments  vs.  Companhia de Saneamento

SEI Investments

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SEI Investments are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting forward indicators, SEI Investments exhibited solid returns over the last few months and may actually be approaching a breakup point.

Companhia de Saneamento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia de Saneamento has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental drivers, Companhia is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with SEI Investments and Companhia

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

The idea behind SEI Investments and Companhia de Saneamento 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.