Correlation Between CPFL Energia and Rossi Residencial

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

Diversification Opportunities for CPFL Energia and Rossi Residencial

0.41

Correlation Coefficient

CPFL Energia  Rossi Residencial

Very weak diversification

The 3 months correlation between CPFL and Rossi is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding CPFL Energia SA and Rossi Residencial SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rossi Residencial 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 Rossi Residencial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rossi Residencial has no effect on the direction of CPFL Energia i.e., CPFL Energia and Rossi Residencial go up and down completely randomly.

Pair Corralation between CPFL Energia and Rossi Residencial

Assuming the 90 days trading horizon CPFL Energia SA is expected to generate 0.5 times more return on investment than Rossi Residencial. However, CPFL Energia SA is 1.98 times less risky than Rossi Residencial. It trades about 0.24 of its potential returns per unit of risk. Rossi Residencial SA is currently generating about 0.04 per unit of risk. If you would invest  3,159  in CPFL Energia SA on December 30, 2024 and sell it today you would earn a total of  623.00  from holding CPFL Energia SA or generate 19.72% return on investment over 90 days.

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

CPFL Energia SA  vs.  Rossi Residencial 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 18 (%) 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.

Rossi Residencial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rossi Residencial SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rossi Residencial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with CPFL Energia and Rossi Residencial

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

The idea behind CPFL Energia SA and Rossi Residencial 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.