Correlation Between CPFL Energia and Odontoprev

Can any of the company-specific risk be diversified away by investing in both CPFL Energia and Odontoprev 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 Odontoprev 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 Odontoprev SA, you can compare the effects of market volatilities on CPFL Energia and Odontoprev 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 Odontoprev. Check out your portfolio center. Please also check ongoing floating volatility patterns of CPFL Energia and Odontoprev.

Diversification Opportunities for CPFL Energia and Odontoprev

0.57

Correlation Coefficient

CPFL Energia  Odontoprev

Very weak diversification

The 3 months correlation between CPFL and Odontoprev is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding CPFL Energia SA and Odontoprev SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Odontoprev 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 Odontoprev. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Odontoprev SA has no effect on the direction of CPFL Energia i.e., CPFL Energia and Odontoprev go up and down completely randomly.

Pair Corralation between CPFL Energia and Odontoprev

Assuming the 90 days trading horizon CPFL Energia SA is expected to under-perform the Odontoprev. But the stock apears to be less risky and, when comparing its historical volatility, CPFL Energia SA is 2.57 times less risky than Odontoprev. The stock trades about -0.12 of its potential returns per unit of risk. The Odontoprev SA is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  1,139  in Odontoprev SA on September 5, 2024 and sell it today you would lose (42.00) from holding Odontoprev SA or give up 3.69% of portfolio value over 90 days.

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

CPFL Energia SA  vs.  Odontoprev SA

CPFL Energia SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CPFL Energia SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Odontoprev SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with CPFL Energia and Odontoprev

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

The idea behind CPFL Energia SA and Odontoprev 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.