Correlation Between Companhia Energtica and Centrais Eltricas

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

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

Diversification Opportunities for Companhia Energtica and Centrais Eltricas

0.29

Correlation Coefficient

Companhia Energtica  Centrais Eltricas

Modest diversification

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

Pair Corralation between Companhia Energtica and Centrais Eltricas

Assuming the 90 days trading horizon Companhia Energtica de is expected to under-perform the Centrais Eltricas. But the preferred stock apears to be less risky and, when comparing its historical volatility, Companhia Energtica de is 1.08 times less risky than Centrais Eltricas. The preferred stock trades about -0.02 of its potential returns per unit of risk. The Centrais Eltricas Brasileiras is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  3,367  in Centrais Eltricas Brasileiras on December 1, 2024 and sell it today you would earn a total of  455.00  from holding Centrais Eltricas Brasileiras or generate 13.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.39%
Values	Daily Returns

Companhia Energtica de  vs.  Centrais Eltricas Brasileiras

Companhia Energtica

Risk-Adjusted Performance

Very Weak

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

Centrais Eltricas

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Centrais Eltricas Brasileiras are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Centrais Eltricas unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Companhia Energtica and Centrais Eltricas

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

The idea behind Companhia Energtica de and Centrais Eltricas 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.