Correlation Between Fortescue Metals and Companhia Energética

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

By analyzing existing cross correlation between Fortescue Metals Group and Companhia Energtica de, you can compare the effects of market volatilities on Fortescue Metals and Companhia Energética 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 Fortescue Metals with a short position of Companhia Energética. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fortescue Metals and Companhia Energética.

Diversification Opportunities for Fortescue Metals and Companhia Energética

0.12

Correlation Coefficient

Fortescue Metals  Companhia Energética

Average diversification

The 3 months correlation between Fortescue and Companhia is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Fortescue Metals Group and Companhia Energtica de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Energética and Fortescue Metals 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 Fortescue Metals Group are associated (or correlated) with Companhia Energética. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Energética has no effect on the direction of Fortescue Metals i.e., Fortescue Metals and Companhia Energética go up and down completely randomly.

Pair Corralation between Fortescue Metals and Companhia Energética

Assuming the 90 days horizon Fortescue Metals Group is expected to under-perform the Companhia Energética. But the stock apears to be less risky and, when comparing its historical volatility, Fortescue Metals Group is 1.1 times less risky than Companhia Energética. The stock trades about -0.12 of its potential returns per unit of risk. The Companhia Energtica de is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  182.00  in Companhia Energtica de on December 24, 2024 and sell it today you would lose (1.00) from holding Companhia Energtica de or give up 0.55% of portfolio value over 90 days.

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

Fortescue Metals Group  vs.  Companhia Energtica de

Fortescue Metals

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fortescue Metals Group 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 basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Companhia Energética

Risk-Adjusted Performance

Very Weak

Over the last 90 days Companhia Energtica de has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Companhia Energética is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Fortescue Metals and Companhia Energética

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

The idea behind Fortescue Metals Group and Companhia Energtica de 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.