Correlation Between Faria Lima and Energisa

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

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

Diversification Opportunities for Faria Lima and Energisa

0.07

Correlation Coefficient

Faria Lima  Energisa

Significant diversification

The 3 months correlation between Faria and Energisa is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding Faria Lima Capital and Energisa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energisa SA and Faria Lima 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 Faria Lima Capital are associated (or correlated) with Energisa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energisa SA has no effect on the direction of Faria Lima i.e., Faria Lima and Energisa go up and down completely randomly.

Pair Corralation between Faria Lima and Energisa

Assuming the 90 days trading horizon Faria Lima Capital is expected to generate 0.17 times more return on investment than Energisa. However, Faria Lima Capital is 5.95 times less risky than Energisa. It trades about 0.28 of its potential returns per unit of risk. Energisa SA is currently generating about -0.11 per unit of risk. If you would invest  9,650  in Faria Lima Capital on October 11, 2024 and sell it today you would earn a total of  199.00  from holding Faria Lima Capital or generate 2.06% return on investment over 90 days.

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

Faria Lima Capital  vs.  Energisa SA

Faria Lima Capital

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Faria Lima Capital are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong fundamental indicators, Faria Lima is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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.

Pair Trading with Faria Lima and Energisa

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

The idea behind Faria Lima Capital and Energisa 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.