Correlation Between Companhia Paranaense and Energisa

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

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

Diversification Opportunities for Companhia Paranaense and Energisa

0.26

Correlation Coefficient

Companhia Paranaense  Energisa

Modest diversification

The 3 months correlation between Companhia and Energisa is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding Companhia Paranaense de and Energisa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energisa SA and Companhia Paranaense 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 Paranaense de are associated (or correlated) with Energisa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energisa SA has no effect on the direction of Companhia Paranaense i.e., Companhia Paranaense and Energisa go up and down completely randomly.

Pair Corralation between Companhia Paranaense and Energisa

Assuming the 90 days trading horizon Companhia Paranaense de is expected to generate 3.1 times more return on investment than Energisa. However, Companhia Paranaense is 3.1 times more volatile than Energisa SA. It trades about 0.02 of its potential returns per unit of risk. Energisa SA is currently generating about -0.17 per unit of risk. If you would invest  1,148  in Companhia Paranaense de on September 2, 2024 and sell it today you would earn a total of  12.00  from holding Companhia Paranaense de or generate 1.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	93.75%
Values	Daily Returns

Companhia Paranaense de  vs.  Energisa SA

Companhia Paranaense

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia Paranaense de are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Companhia Paranaense may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Energisa SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Companhia Paranaense and Energisa

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

The idea behind Companhia Paranaense de and Energisa 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.