Correlation Between Centrais Electricas and Equatorial Energia

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

Diversification Opportunities for Centrais Electricas and Equatorial Energia

0.87

Correlation Coefficient

Centrais Electricas  Equatorial Energia

Very poor diversification

The 3 months correlation between Centrais and Equatorial is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Electricas Brasileira and Equatorial Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equatorial Energia 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 Equatorial Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equatorial Energia has no effect on the direction of Centrais Electricas i.e., Centrais Electricas and Equatorial Energia go up and down completely randomly.

Pair Corralation between Centrais Electricas and Equatorial Energia

Considering the 90-day investment horizon Centrais Electricas is expected to generate 1.3 times less return on investment than Equatorial Energia. But when comparing it to its historical volatility, Centrais Electricas Brasileiras is 2.5 times less risky than Equatorial Energia. It trades about 0.25 of its potential returns per unit of risk. Equatorial Energia SA is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  441.00  in Equatorial Energia SA on December 30, 2024 and sell it today you would earn a total of  139.00  from holding Equatorial Energia SA or generate 31.52% return on investment over 90 days.

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

Centrais Electricas Brasileira  vs.  Equatorial Energia SA

Centrais Electricas

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Centrais Electricas Brasileiras are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Centrais Electricas reported solid returns over the last few months and may actually be approaching a breakup point.

Equatorial Energia

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Equatorial Energia SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Equatorial Energia showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Centrais Electricas and Equatorial Energia

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

The idea behind Centrais Electricas Brasileiras and Equatorial Energia 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.