Correlation Between CAP SA and Energia Latina

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

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

Diversification Opportunities for CAP SA and Energia Latina

0.29

Correlation Coefficient

CAP SA  Energia Latina

Modest diversification

The 3 months correlation between CAP and Energia is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding CAP SA and Energia Latina SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energia Latina SA and CAP 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 CAP SA are associated (or correlated) with Energia Latina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energia Latina SA has no effect on the direction of CAP SA i.e., CAP SA and Energia Latina go up and down completely randomly.

Pair Corralation between CAP SA and Energia Latina

Assuming the 90 days trading horizon CAP SA is expected to under-perform the Energia Latina. But the stock apears to be less risky and, when comparing its historical volatility, CAP SA is 1.58 times less risky than Energia Latina. The stock trades about -0.01 of its potential returns per unit of risk. The Energia Latina SA is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  76,000  in Energia Latina SA on September 3, 2024 and sell it today you would earn a total of  17,500  from holding Energia Latina SA or generate 23.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	61.43%
Values	Daily Returns

CAP SA  vs.  Energia Latina SA

CAP SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CAP SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, CAP SA is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Energia Latina SA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energia Latina SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Energia Latina is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CAP SA and Energia Latina

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

The idea behind CAP SA and Energia Latina SA 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.