Correlation Between Enel Generacion and Empresa Distribuidora

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

By analyzing existing cross correlation between Enel Generacion Costanera and Empresa Distribuidora y, you can compare the effects of market volatilities on Enel Generacion and Empresa Distribuidora 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 Enel Generacion with a short position of Empresa Distribuidora. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enel Generacion and Empresa Distribuidora.

Diversification Opportunities for Enel Generacion and Empresa Distribuidora

-0.48

Correlation Coefficient

Enel Generacion  Empresa Distribuidora

Very good diversification

The 3 months correlation between Enel and Empresa is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Enel Generacion Costanera and Empresa Distribuidora y in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Empresa Distribuidora and Enel Generacion 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 Enel Generacion Costanera are associated (or correlated) with Empresa Distribuidora. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Empresa Distribuidora has no effect on the direction of Enel Generacion i.e., Enel Generacion and Empresa Distribuidora go up and down completely randomly.

Pair Corralation between Enel Generacion and Empresa Distribuidora

Assuming the 90 days trading horizon Enel Generacion Costanera is expected to generate 0.89 times more return on investment than Empresa Distribuidora. However, Enel Generacion Costanera is 1.13 times less risky than Empresa Distribuidora. It trades about 0.04 of its potential returns per unit of risk. Empresa Distribuidora y is currently generating about -0.07 per unit of risk. If you would invest  47,000  in Enel Generacion Costanera on December 30, 2024 and sell it today you would earn a total of  2,300  from holding Enel Generacion Costanera or generate 4.89% return on investment over 90 days.

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

Enel Generacion Costanera  vs.  Empresa Distribuidora y

Enel Generacion Costanera

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Enel Generacion Costanera are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Enel Generacion may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Empresa Distribuidora

Risk-Adjusted Performance

Very Weak

Over the last 90 days Empresa Distribuidora y has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Enel Generacion and Empresa Distribuidora

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

The idea behind Enel Generacion Costanera and Empresa Distribuidora y 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.