Correlation Between Centrais Elétricas and Enel Chile

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

Diversification Opportunities for Centrais Elétricas and Enel Chile

0.89

Correlation Coefficient

Centrais Elétricas  Enel Chile

Very poor diversification

The 3 months correlation between Centrais and Enel is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and Enel Chile SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enel Chile SA 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 Enel Chile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enel Chile SA has no effect on the direction of Centrais Elétricas i.e., Centrais Elétricas and Enel Chile go up and down completely randomly.

Pair Corralation between Centrais Elétricas and Enel Chile

Assuming the 90 days horizon Centrais Eltricas Brasileiras is expected to generate 1.22 times more return on investment than Enel Chile. However, Centrais Elétricas is 1.22 times more volatile than Enel Chile SA. It trades about 0.21 of its potential returns per unit of risk. Enel Chile SA is currently generating about 0.17 per unit of risk. If you would invest  609.00  in Centrais Eltricas Brasileiras on December 29, 2024 and sell it today you would earn a total of  152.00  from holding Centrais Eltricas Brasileiras or generate 24.96% 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.  Enel Chile SA

Centrais Elétricas

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Centrais Eltricas Brasileiras are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Centrais Elétricas sustained solid returns over the last few months and may actually be approaching a breakup point.

Enel Chile SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Enel Chile SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak forward indicators, Enel Chile exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Centrais Elétricas and Enel Chile

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

The idea behind Centrais Eltricas Brasileiras and Enel Chile 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.