Correlation Between Equatorial Energia and Rumo SA

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

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

Diversification Opportunities for Equatorial Energia and Rumo SA

0.69

Correlation Coefficient

Equatorial Energia  Rumo SA

Poor diversification

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

Pair Corralation between Equatorial Energia and Rumo SA

Assuming the 90 days trading horizon Equatorial Energia SA is expected to under-perform the Rumo SA. But the stock apears to be less risky and, when comparing its historical volatility, Equatorial Energia SA is 1.2 times less risky than Rumo SA. The stock trades about -0.1 of its potential returns per unit of risk. The Rumo SA is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  2,116  in Rumo SA on September 13, 2024 and sell it today you would lose (130.00) from holding Rumo SA or give up 6.14% of portfolio value over 90 days.

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

Equatorial Energia SA  vs.  Rumo SA

Equatorial Energia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equatorial Energia SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak 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.

Rumo SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Equatorial Energia and Rumo SA

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

The idea behind Equatorial Energia SA and Rumo 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.