Correlation Between Engie Brasil and Red Electrica

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

Diversification Opportunities for Engie Brasil and Red Electrica

0.74

Correlation Coefficient

Engie Brasil  Red Electrica

Poor diversification

The 3 months correlation between Engie and Red is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Engie Brasil Energia and Red Electrica Corporacion in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Red Electrica Corporacion 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 Red Electrica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Red Electrica Corporacion has no effect on the direction of Engie Brasil i.e., Engie Brasil and Red Electrica go up and down completely randomly.

Pair Corralation between Engie Brasil and Red Electrica

Assuming the 90 days horizon Engie Brasil Energia is expected to generate 1.67 times more return on investment than Red Electrica. However, Engie Brasil is 1.67 times more volatile than Red Electrica Corporacion. It trades about 0.16 of its potential returns per unit of risk. Red Electrica Corporacion is currently generating about 0.2 per unit of risk. If you would invest  579.00  in Engie Brasil Energia on December 28, 2024 and sell it today you would earn a total of  121.00  from holding Engie Brasil Energia or generate 20.9% 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.  Red Electrica Corporacion

Engie Brasil Energia

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Engie Brasil Energia are ranked lower than 12 (%) 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.

Red Electrica Corporacion

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Red Electrica Corporacion are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward indicators, Red Electrica showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Engie Brasil and Red Electrica

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

The idea behind Engie Brasil Energia and Red Electrica Corporacion 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..