Correlation Between Elektro Redes and Companhia

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

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

Diversification Opportunities for Elektro Redes and Companhia

-0.15

Correlation Coefficient

Elektro Redes  Companhia

Good diversification

The 3 months correlation between Elektro and Companhia is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Elektro Redes SA and Companhia de Saneamento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Saneamento and Elektro Redes 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 Elektro Redes SA are associated (or correlated) with Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Saneamento has no effect on the direction of Elektro Redes i.e., Elektro Redes and Companhia go up and down completely randomly.

Pair Corralation between Elektro Redes and Companhia

Assuming the 90 days trading horizon Elektro Redes SA is expected to generate 2.82 times more return on investment than Companhia. However, Elektro Redes is 2.82 times more volatile than Companhia de Saneamento. It trades about 0.06 of its potential returns per unit of risk. Companhia de Saneamento is currently generating about -0.27 per unit of risk. If you would invest  4,579  in Elektro Redes SA on October 6, 2024 and sell it today you would earn a total of  138.00  from holding Elektro Redes SA or generate 3.01% return on investment over 90 days.

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

Elektro Redes SA  vs.  Companhia de Saneamento

Elektro Redes SA

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Elektro Redes SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Elektro Redes may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Companhia de Saneamento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia de Saneamento has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Companhia is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Elektro Redes and Companhia

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

The idea behind Elektro Redes SA and Companhia de Saneamento 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.