Correlation Between Centrais Electricas and Engie SA

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

Diversification Opportunities for Centrais Electricas and Engie SA

0.9

Correlation Coefficient

Centrais Electricas  Engie SA

Almost no diversification

The 3 months correlation between Centrais and Engie is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Electricas Brasileira and Engie SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engie SA ADR 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 Engie SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engie SA ADR has no effect on the direction of Centrais Electricas i.e., Centrais Electricas and Engie SA go up and down completely randomly.

Pair Corralation between Centrais Electricas and Engie SA

Considering the 90-day investment horizon Centrais Electricas Brasileiras is expected to under-perform the Engie SA. In addition to that, Centrais Electricas is 1.9 times more volatile than Engie SA ADR. It trades about -0.18 of its total potential returns per unit of risk. Engie SA ADR is currently generating about -0.16 per unit of volatility. If you would invest  1,734  in Engie SA ADR on August 31, 2024 and sell it today you would lose (160.00) from holding Engie SA ADR or give up 9.23% of portfolio value over 90 days.

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

Centrais Electricas Brasileira  vs.  Engie SA ADR

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 December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Engie SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Engie SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Centrais Electricas and Engie SA

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

The idea behind Centrais Electricas Brasileiras and Engie SA ADR 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.