Correlation Between Avangrid and Centrais Electricas

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

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

Diversification Opportunities for Avangrid and Centrais Electricas

-0.58

Correlation Coefficient

Avangrid  Centrais Electricas

Excellent diversification

The 3 months correlation between Avangrid and Centrais is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Avangrid and Centrais Electricas Brasileira in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Electricas and Avangrid 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 Avangrid are associated (or correlated) with Centrais Electricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Electricas has no effect on the direction of Avangrid i.e., Avangrid and Centrais Electricas go up and down completely randomly.

Pair Corralation between Avangrid and Centrais Electricas

Considering the 90-day investment horizon Avangrid is expected to generate 0.12 times more return on investment than Centrais Electricas. However, Avangrid is 8.37 times less risky than Centrais Electricas. It trades about 0.09 of its potential returns per unit of risk. Centrais Electricas Brasileiras is currently generating about -0.21 per unit of risk. If you would invest  3,566  in Avangrid on September 3, 2024 and sell it today you would earn a total of  44.00  from holding Avangrid or generate 1.23% return on investment over 90 days.

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

Avangrid  vs.  Centrais Electricas Brasileira

Avangrid

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avangrid are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Avangrid is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Centrais Electricas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centrais Electricas Brasileiras has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's fundamental drivers remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Avangrid and Centrais Electricas

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

The idea behind Avangrid and Centrais Electricas Brasileiras 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.