Correlation Between Companhia Paranaense and Allete

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

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

Diversification Opportunities for Companhia Paranaense and Allete

0.84

Correlation Coefficient

Companhia Paranaense  Allete

Very poor diversification

The 3 months correlation between Companhia and Allete is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Companhia Paranaense de and Allete Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Allete Inc and Companhia Paranaense 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 Companhia Paranaense de are associated (or correlated) with Allete. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Allete Inc has no effect on the direction of Companhia Paranaense i.e., Companhia Paranaense and Allete go up and down completely randomly.

Pair Corralation between Companhia Paranaense and Allete

Given the investment horizon of 90 days Companhia Paranaense de is expected to generate 8.52 times more return on investment than Allete. However, Companhia Paranaense is 8.52 times more volatile than Allete Inc. It trades about 0.17 of its potential returns per unit of risk. Allete Inc is currently generating about 0.17 per unit of risk. If you would invest  533.00  in Companhia Paranaense de on December 29, 2024 and sell it today you would earn a total of  129.00  from holding Companhia Paranaense de or generate 24.2% return on investment over 90 days.

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

Companhia Paranaense de  vs.  Allete Inc

Companhia Paranaense

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia Paranaense de are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather conflicting basic indicators, Companhia Paranaense exhibited solid returns over the last few months and may actually be approaching a breakup point.

Allete Inc

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Allete Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Allete is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Companhia Paranaense and Allete

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

The idea behind Companhia Paranaense de and Allete Inc 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..