Correlation Between CPFL Energia and Light SA

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

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

Diversification Opportunities for CPFL Energia and Light SA

0.13

Correlation Coefficient

CPFL Energia  Light SA

Average diversification

The 3 months correlation between CPFL and Light is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding CPFL Energia SA and Light SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Light SA and CPFL Energia 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 CPFL Energia SA are associated (or correlated) with Light SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Light SA has no effect on the direction of CPFL Energia i.e., CPFL Energia and Light SA go up and down completely randomly.

Pair Corralation between CPFL Energia and Light SA

Assuming the 90 days trading horizon CPFL Energia SA is expected to generate 0.4 times more return on investment than Light SA. However, CPFL Energia SA is 2.49 times less risky than Light SA. It trades about 0.26 of its potential returns per unit of risk. Light SA is currently generating about 0.08 per unit of risk. If you would invest  3,149  in CPFL Energia SA on December 24, 2024 and sell it today you would earn a total of  664.00  from holding CPFL Energia SA or generate 21.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

CPFL Energia SA  vs.  Light SA

CPFL Energia SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CPFL Energia SA are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, CPFL Energia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Light SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Light SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Light SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CPFL Energia and Light SA

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

The idea behind CPFL Energia SA and Light 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..