Correlation Between Energisa and CPFL Energia

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

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

Diversification Opportunities for Energisa and CPFL Energia

0.69

Correlation Coefficient

Energisa  CPFL Energia

Poor diversification

The 3 months correlation between Energisa and CPFL is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Energisa SA and CPFL Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPFL Energia SA and Energisa 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 Energisa SA are associated (or correlated) with CPFL Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPFL Energia SA has no effect on the direction of Energisa i.e., Energisa and CPFL Energia go up and down completely randomly.

Pair Corralation between Energisa and CPFL Energia

Assuming the 90 days trading horizon Energisa is expected to generate 1.65 times less return on investment than CPFL Energia. In addition to that, Energisa is 1.51 times more volatile than CPFL Energia SA. It trades about 0.1 of its total potential returns per unit of risk. CPFL Energia SA is currently generating about 0.24 per unit of volatility. If you would invest  3,159  in CPFL Energia SA on December 29, 2024 and sell it today you would earn a total of  623.00  from holding CPFL Energia SA or generate 19.72% return on investment over 90 days.

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

Energisa SA  vs.  CPFL Energia SA

Energisa SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energisa SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Energisa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

CPFL Energia SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CPFL Energia SA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, CPFL Energia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energisa and CPFL Energia

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

The idea behind Energisa SA and CPFL Energia SA 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 Stocks Directory module to find actively traded stocks across global markets.