Correlation Between Centrais Electricas and Connecticut Light

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

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

Diversification Opportunities for Centrais Electricas and Connecticut Light

0.12

Correlation Coefficient

Centrais Electricas  Connecticut Light

Average diversification

The 3 months correlation between Centrais and Connecticut is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Electricas Brasileira and The Connecticut Light in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Connecticut Light and Centrais Electricas 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 Electricas Brasileiras are associated (or correlated) with Connecticut Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Connecticut Light has no effect on the direction of Centrais Electricas i.e., Centrais Electricas and Connecticut Light go up and down completely randomly.

Pair Corralation between Centrais Electricas and Connecticut Light

Considering the 90-day investment horizon Centrais Electricas Brasileiras is expected to under-perform the Connecticut Light. But the stock apears to be less risky and, when comparing its historical volatility, Centrais Electricas Brasileiras is 4.62 times less risky than Connecticut Light. The stock trades about -0.2 of its potential returns per unit of risk. The The Connecticut Light is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  5,457  in The Connecticut Light on September 15, 2024 and sell it today you would lose (102.00) from holding The Connecticut Light or give up 1.87% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	96.88%
Values	Daily Returns

Centrais Electricas Brasileira  vs.  The Connecticut Light

Centrais Electricas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centrais Electricas Brasileiras has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's fundamental drivers remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Connecticut Light

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The Connecticut Light are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical indicators, Connecticut Light reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Centrais Electricas and Connecticut Light

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

The idea behind Centrais Electricas Brasileiras and The Connecticut Light 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.