Correlation Between Centrais Eltricas and Consumers Energy

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

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

Diversification Opportunities for Centrais Eltricas and Consumers Energy

0.83

Correlation Coefficient

Centrais Eltricas  Consumers Energy

Very poor diversification

The 3 months correlation between Centrais and Consumers is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and Consumers Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumers Energy and Centrais Eltricas 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 Centrais Eltricas Brasileiras are associated (or correlated) with Consumers Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumers Energy has no effect on the direction of Centrais Eltricas i.e., Centrais Eltricas and Consumers Energy go up and down completely randomly.

Pair Corralation between Centrais Eltricas and Consumers Energy

Assuming the 90 days horizon Centrais Eltricas Brasileiras is expected to generate 2.77 times more return on investment than Consumers Energy. However, Centrais Eltricas is 2.77 times more volatile than Consumers Energy. It trades about 0.02 of its potential returns per unit of risk. Consumers Energy is currently generating about -0.23 per unit of risk. If you would invest  631.00  in Centrais Eltricas Brasileiras on October 11, 2024 and sell it today you would earn a total of  4.00  from holding Centrais Eltricas Brasileiras or generate 0.63% return on investment over 90 days.

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

Centrais Eltricas Brasileiras  vs.  Consumers Energy

Centrais Eltricas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centrais Eltricas Brasileiras has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Consumers Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumers Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Preferred Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Centrais Eltricas and Consumers Energy

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

The idea behind Centrais Eltricas Brasileiras and Consumers Energy 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.