Correlation Between Centrais Elétricas and PacifiCorp

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

Diversification Opportunities for Centrais Elétricas and PacifiCorp

0.56

Correlation Coefficient

Centrais Elétricas  PacifiCorp

Very weak diversification

The 3 months correlation between Centrais and PacifiCorp is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and PacifiCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacifiCorp 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 PacifiCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacifiCorp has no effect on the direction of Centrais Elétricas i.e., Centrais Elétricas and PacifiCorp go up and down completely randomly.

Pair Corralation between Centrais Elétricas and PacifiCorp

Assuming the 90 days horizon Centrais Elétricas is expected to generate 69.84 times less return on investment than PacifiCorp. But when comparing it to its historical volatility, Centrais Eltricas Brasileiras is 105.4 times less risky than PacifiCorp. It trades about 0.23 of its potential returns per unit of risk. PacifiCorp is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  100,000,000  in PacifiCorp on December 22, 2024 and sell it today you would lose (99,980,675) from holding PacifiCorp or give up 99.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	43.33%
Values	Daily Returns

Centrais Eltricas Brasileiras  vs.  PacifiCorp

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 18 (%) 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.

PacifiCorp

Risk-Adjusted Performance

Good

Over the last 90 days PacifiCorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very weak essential indicators, PacifiCorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Centrais Elétricas and PacifiCorp

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

The idea behind Centrais Eltricas Brasileiras and PacifiCorp 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.

Check out your portfolio center.

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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.