Correlation Between EDP Energias and Companhia Energetica

Can any of the company-specific risk be diversified away by investing in both EDP Energias and Companhia Energetica 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 EDP Energias and Companhia Energetica into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EDP Energias de and Companhia Energetica de, you can compare the effects of market volatilities on EDP Energias and Companhia Energetica 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 EDP Energias with a short position of Companhia Energetica. Check out your portfolio center. Please also check ongoing floating volatility patterns of EDP Energias and Companhia Energetica.

Diversification Opportunities for EDP Energias and Companhia Energetica

0.6

Correlation Coefficient

EDP Energias  Companhia Energetica

Poor diversification

The 3 months correlation between EDP and Companhia is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias de and Companhia Energetica de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Energetica and EDP Energias 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 EDP Energias de are associated (or correlated) with Companhia Energetica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Energetica has no effect on the direction of EDP Energias i.e., EDP Energias and Companhia Energetica go up and down completely randomly.

Pair Corralation between EDP Energias and Companhia Energetica

Assuming the 90 days horizon EDP Energias de is expected to under-perform the Companhia Energetica. But the pink sheet apears to be less risky and, when comparing its historical volatility, EDP Energias de is 1.31 times less risky than Companhia Energetica. The pink sheet trades about -0.07 of its potential returns per unit of risk. The Companhia Energetica de is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  167.00  in Companhia Energetica de on September 29, 2024 and sell it today you would earn a total of  13.00  from holding Companhia Energetica de or generate 7.78% return on investment over 90 days.

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

EDP Energias de  vs.  Companhia Energetica de

EDP Energias de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Energias de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Companhia Energetica

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Energetica de has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's forward indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with EDP Energias and Companhia Energetica

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

The idea behind EDP Energias de and Companhia Energetica de 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.