Correlation Between Empresa Metropolitana and Rio Paranapanema

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

By analyzing existing cross correlation between Empresa Metropolitana de and Rio Paranapanema Energia, you can compare the effects of market volatilities on Empresa Metropolitana and Rio Paranapanema 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 Empresa Metropolitana with a short position of Rio Paranapanema. Check out your portfolio center. Please also check ongoing floating volatility patterns of Empresa Metropolitana and Rio Paranapanema.

Diversification Opportunities for Empresa Metropolitana and Rio Paranapanema

0.17

Correlation Coefficient

Empresa Metropolitana  Rio Paranapanema

Average diversification

The 3 months correlation between Empresa and Rio is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Empresa Metropolitana de and Rio Paranapanema Energia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Paranapanema Energia and Empresa Metropolitana 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 Empresa Metropolitana de are associated (or correlated) with Rio Paranapanema. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Paranapanema Energia has no effect on the direction of Empresa Metropolitana i.e., Empresa Metropolitana and Rio Paranapanema go up and down completely randomly.

Pair Corralation between Empresa Metropolitana and Rio Paranapanema

Assuming the 90 days trading horizon Empresa Metropolitana de is expected to under-perform the Rio Paranapanema. In addition to that, Empresa Metropolitana is 1.65 times more volatile than Rio Paranapanema Energia. It trades about -0.03 of its total potential returns per unit of risk. Rio Paranapanema Energia is currently generating about 0.1 per unit of volatility. If you would invest  2,975  in Rio Paranapanema Energia on December 30, 2024 and sell it today you would earn a total of  275.00  from holding Rio Paranapanema Energia or generate 9.24% return on investment over 90 days.

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

Empresa Metropolitana de  vs.  Rio Paranapanema Energia

Empresa Metropolitana

Risk-Adjusted Performance

Very Weak

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

Rio Paranapanema Energia

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Paranapanema Energia are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rio Paranapanema may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Empresa Metropolitana and Rio Paranapanema

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

The idea behind Empresa Metropolitana de and Rio Paranapanema Energia 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.