Correlation Between Centrais Elétricas and Entergy Texas

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

Diversification Opportunities for Centrais Elétricas and Entergy Texas

0.78

Correlation Coefficient

Centrais Elétricas  Entergy Texas

Poor diversification

The 3 months correlation between Centrais and Entergy is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and Entergy Texas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy Texas 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 Entergy Texas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy Texas has no effect on the direction of Centrais Elétricas i.e., Centrais Elétricas and Entergy Texas go up and down completely randomly.

Pair Corralation between Centrais Elétricas and Entergy Texas

Assuming the 90 days horizon Centrais Eltricas Brasileiras is expected to generate 1.94 times more return on investment than Entergy Texas. However, Centrais Elétricas is 1.94 times more volatile than Entergy Texas. It trades about 0.2 of its potential returns per unit of risk. Entergy Texas is currently generating about 0.07 per unit of risk. If you would invest  609.00  in Centrais Eltricas Brasileiras on December 30, 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	Significant
Accuracy	100.0%
Values	Daily Returns

Centrais Eltricas Brasileiras  vs.  Entergy Texas

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.

Entergy Texas

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy Texas are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Entergy Texas is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Centrais Elétricas and Entergy Texas

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

The idea behind Centrais Eltricas Brasileiras and Entergy Texas 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.