Correlation Between Energisa and Direcional Engenharia

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

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

Diversification Opportunities for Energisa and Direcional Engenharia

0.87

Correlation Coefficient

Energisa  Direcional Engenharia

Very poor diversification

The 3 months correlation between Energisa and Direcional is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Energisa SA and Direcional Engenharia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Direcional Engenharia 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 Direcional Engenharia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Direcional Engenharia has no effect on the direction of Energisa i.e., Energisa and Direcional Engenharia go up and down completely randomly.

Pair Corralation between Energisa and Direcional Engenharia

Assuming the 90 days trading horizon Energisa is expected to generate 6.74 times less return on investment than Direcional Engenharia. But when comparing it to its historical volatility, Energisa SA is 1.57 times less risky than Direcional Engenharia. It trades about 0.01 of its potential returns per unit of risk. Direcional Engenharia SA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,575  in Direcional Engenharia SA on October 26, 2024 and sell it today you would earn a total of  27.00  from holding Direcional Engenharia SA or generate 1.05% 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.  Direcional Engenharia SA

Energisa SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energisa SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Stock's technical and fundamental indicators remain somewhat strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Direcional Engenharia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Direcional Engenharia SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Energisa and Direcional Engenharia

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

The idea behind Energisa SA and Direcional Engenharia 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.