Correlation Between Centrais Elétricas and Edison International

Can any of the company-specific risk be diversified away by investing in both Centrais Elétricas and Edison International 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 Elétricas and Edison International 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 Edison International, you can compare the effects of market volatilities on Centrais Elétricas and Edison International 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 Elétricas with a short position of Edison International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Centrais Elétricas and Edison International.

Diversification Opportunities for Centrais Elétricas and Edison International

0.15

Correlation Coefficient

Centrais Elétricas  Edison International

Average diversification

The 3 months correlation between Centrais and Edison is 0.15. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and Edison International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Edison International and Centrais Elétricas 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 Edison International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Edison International has no effect on the direction of Centrais Elétricas i.e., Centrais Elétricas and Edison International go up and down completely randomly.

Pair Corralation between Centrais Elétricas and Edison International

Assuming the 90 days horizon Centrais Eltricas Brasileiras is expected to under-perform the Edison International. In addition to that, Centrais Elétricas is 1.98 times more volatile than Edison International. It trades about -0.2 of its total potential returns per unit of risk. Edison International is currently generating about 0.03 per unit of volatility. If you would invest  8,654  in Edison International on September 2, 2024 and sell it today you would earn a total of  121.00  from holding Edison International or generate 1.4% return on investment over 90 days.

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

Centrais Eltricas Brasileiras  vs.  Edison International

Centrais Elétricas

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 weak performance in the last few months, the Stock's basic 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.

Edison International

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Edison International are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, Edison International is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Centrais Elétricas and Edison International

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

The idea behind Centrais Eltricas Brasileiras and Edison International 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 Global Correlations module to find global opportunities by holding instruments from different markets.