Correlation Between EDP Energias and Tri Continental

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

By analyzing existing cross correlation between EDP Energias and Tri Continental PFD, you can compare the effects of market volatilities on EDP Energias and Tri Continental 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 Tri Continental. Check out your portfolio center. Please also check ongoing floating volatility patterns of EDP Energias and Tri Continental.

Diversification Opportunities for EDP Energias and Tri Continental

0.89

Correlation Coefficient

EDP Energias  Tri Continental

Very poor diversification

The 3 months correlation between EDP and Tri is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias and Tri Continental PFD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tri Continental PFD 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 are associated (or correlated) with Tri Continental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tri Continental PFD has no effect on the direction of EDP Energias i.e., EDP Energias and Tri Continental go up and down completely randomly.

Pair Corralation between EDP Energias and Tri Continental

Assuming the 90 days horizon EDP Energias is expected to under-perform the Tri Continental. In addition to that, EDP Energias is 2.67 times more volatile than Tri Continental PFD. It trades about -0.2 of its total potential returns per unit of risk. Tri Continental PFD is currently generating about -0.01 per unit of volatility. If you would invest  4,514  in Tri Continental PFD on September 25, 2024 and sell it today you would lose (14.00) from holding Tri Continental PFD or give up 0.31% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

EDP Energias  vs.  Tri Continental PFD

EDP Energias

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Energias has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Tri Continental PFD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tri Continental PFD has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Tri Continental is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with EDP Energias and Tri Continental

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

The idea behind EDP Energias and Tri Continental PFD 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.