Correlation Between Energisa and CVC Brasil

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

By analyzing existing cross correlation between Energisa SA and CVC Brasil Operadora, you can compare the effects of market volatilities on Energisa and CVC Brasil 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 CVC Brasil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energisa and CVC Brasil.

Diversification Opportunities for Energisa and CVC Brasil

0.82

Correlation Coefficient

Energisa  CVC Brasil

Very poor diversification

The 3 months correlation between Energisa and CVC is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Energisa SA and CVC Brasil Operadora in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CVC Brasil Operadora 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 CVC Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CVC Brasil Operadora has no effect on the direction of Energisa i.e., Energisa and CVC Brasil go up and down completely randomly.

Pair Corralation between Energisa and CVC Brasil

Assuming the 90 days trading horizon Energisa is expected to generate 2.37 times less return on investment than CVC Brasil. But when comparing it to its historical volatility, Energisa SA is 2.05 times less risky than CVC Brasil. It trades about 0.11 of its potential returns per unit of risk. CVC Brasil Operadora is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  155.00  in CVC Brasil Operadora on December 23, 2024 and sell it today you would earn a total of  43.00  from holding CVC Brasil Operadora or generate 27.74% return on investment over 90 days.

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

Energisa SA  vs.  CVC Brasil Operadora

Energisa SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energisa SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain technical and fundamental indicators, Energisa sustained solid returns over the last few months and may actually be approaching a breakup point.

CVC Brasil Operadora

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CVC Brasil Operadora are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, CVC Brasil unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Energisa and CVC Brasil

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

The idea behind Energisa SA and CVC Brasil Operadora 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.