Correlation Between Centrais Electricas and Entergy

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

Diversification Opportunities for Centrais Electricas and Entergy

0.79

Correlation Coefficient

Centrais Electricas  Entergy

Poor diversification

The 3 months correlation between Centrais and Entergy is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Electricas Brasileira and Entergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy 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 Entergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy has no effect on the direction of Centrais Electricas i.e., Centrais Electricas and Entergy go up and down completely randomly.

Pair Corralation between Centrais Electricas and Entergy

Considering the 90-day investment horizon Centrais Electricas Brasileiras is expected to generate 1.34 times more return on investment than Entergy. However, Centrais Electricas is 1.34 times more volatile than Entergy. It trades about 0.14 of its potential returns per unit of risk. Entergy is currently generating about 0.12 per unit of risk. If you would invest  557.00  in Centrais Electricas Brasileiras on November 28, 2024 and sell it today you would earn a total of  89.00  from holding Centrais Electricas Brasileiras or generate 15.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.31%
Values	Daily Returns

Centrais Electricas Brasileira  vs.  Entergy

Centrais Electricas

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Centrais Electricas Brasileiras are ranked lower than 10 (%) 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.

Entergy

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, Entergy may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Centrais Electricas and Entergy

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

The idea behind Centrais Electricas Brasileiras and Entergy 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.