Correlation Between Endesa SA and Centrais Elétricas

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

By analyzing existing cross correlation between Endesa SA ADR and Centrais Eltricas Brasileiras, you can compare the effects of market volatilities on Endesa SA and Centrais Elétricas 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 Endesa SA with a short position of Centrais Elétricas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Endesa SA and Centrais Elétricas.

Diversification Opportunities for Endesa SA and Centrais Elétricas

0.42

Correlation Coefficient

Endesa SA  Centrais Elétricas

Very weak diversification

The 3 months correlation between Endesa and Centrais is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Endesa SA ADR and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Elétricas and Endesa SA 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 Endesa SA ADR are associated (or correlated) with Centrais Elétricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Elétricas has no effect on the direction of Endesa SA i.e., Endesa SA and Centrais Elétricas go up and down completely randomly.

Pair Corralation between Endesa SA and Centrais Elétricas

Assuming the 90 days horizon Endesa SA ADR is expected to generate 0.85 times more return on investment than Centrais Elétricas. However, Endesa SA ADR is 1.17 times less risky than Centrais Elétricas. It trades about 0.25 of its potential returns per unit of risk. Centrais Eltricas Brasileiras is currently generating about 0.2 per unit of risk. If you would invest  1,066  in Endesa SA ADR on December 30, 2024 and sell it today you would earn a total of  287.00  from holding Endesa SA ADR or generate 26.92% return on investment over 90 days.

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

Endesa SA ADR  vs.  Centrais Eltricas Brasileiras

Endesa SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA ADR are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Endesa SA showed solid returns over the last few months and may actually be approaching a breakup point.

Centrais Elétricas

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Centrais Eltricas Brasileiras are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Centrais Elétricas sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Endesa SA and Centrais Elétricas

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

The idea behind Endesa SA ADR and Centrais Eltricas Brasileiras 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.