Correlation Between Centrais Electricas and Southern

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

Diversification Opportunities for Centrais Electricas and Southern

0.41

Correlation Coefficient

Centrais Electricas  Southern

Very weak diversification

The 3 months correlation between Centrais and Southern is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Electricas Brasileira and Southern Company in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Southern 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 Southern. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Southern has no effect on the direction of Centrais Electricas i.e., Centrais Electricas and Southern go up and down completely randomly.

Pair Corralation between Centrais Electricas and Southern

Considering the 90-day investment horizon Centrais Electricas Brasileiras is expected to under-perform the Southern. In addition to that, Centrais Electricas is 1.94 times more volatile than Southern Company. It trades about -0.16 of its total potential returns per unit of risk. Southern Company is currently generating about -0.1 per unit of volatility. If you would invest  8,871  in Southern Company on September 13, 2024 and sell it today you would lose (546.00) from holding Southern Company or give up 6.15% of portfolio value over 90 days.

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

Centrais Electricas Brasileira  vs.  Southern Company

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.

Southern

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Southern Company has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Southern is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Centrais Electricas and Southern

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

The idea behind Centrais Electricas Brasileiras and Southern Company 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.