Correlation Between Engie Brasil and Consumers Energy

Can any of the company-specific risk be diversified away by investing in both Engie Brasil and Consumers Energy 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 Engie Brasil and Consumers Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Engie Brasil Energia and Consumers Energy, you can compare the effects of market volatilities on Engie Brasil and Consumers Energy 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 Engie Brasil with a short position of Consumers Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Engie Brasil and Consumers Energy.

Diversification Opportunities for Engie Brasil and Consumers Energy

0.66

Correlation Coefficient

Engie Brasil  Consumers Energy

Poor diversification

The 3 months correlation between Engie and Consumers is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Engie Brasil Energia and Consumers Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumers Energy and Engie Brasil 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 Engie Brasil Energia are associated (or correlated) with Consumers Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumers Energy has no effect on the direction of Engie Brasil i.e., Engie Brasil and Consumers Energy go up and down completely randomly.

Pair Corralation between Engie Brasil and Consumers Energy

Assuming the 90 days horizon Engie Brasil Energia is expected to generate 1.57 times more return on investment than Consumers Energy. However, Engie Brasil is 1.57 times more volatile than Consumers Energy. It trades about 0.13 of its potential returns per unit of risk. Consumers Energy is currently generating about 0.06 per unit of risk. If you would invest  579.00  in Engie Brasil Energia on December 30, 2024 and sell it today you would earn a total of  99.00  from holding Engie Brasil Energia or generate 17.1% return on investment over 90 days.

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

Engie Brasil Energia  vs.  Consumers Energy

Engie Brasil Energia

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Engie Brasil Energia are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Engie Brasil showed solid returns over the last few months and may actually be approaching a breakup point.

Consumers Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Consumers Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Consumers Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Engie Brasil and Consumers Energy

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

The idea behind Engie Brasil Energia and Consumers Energy 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.

Check out your portfolio center.

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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.