Correlation Between Rio Paranapanema and Elektro Redes

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

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

Diversification Opportunities for Rio Paranapanema and Elektro Redes

0.37

Correlation Coefficient

Rio Paranapanema  Elektro Redes

Weak diversification

The 3 months correlation between Rio and Elektro is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Rio Paranapanema Energia and Elektro Redes SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Elektro Redes SA and Rio Paranapanema 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 Rio Paranapanema Energia are associated (or correlated) with Elektro Redes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Elektro Redes SA has no effect on the direction of Rio Paranapanema i.e., Rio Paranapanema and Elektro Redes go up and down completely randomly.

Pair Corralation between Rio Paranapanema and Elektro Redes

Assuming the 90 days trading horizon Rio Paranapanema is expected to generate 1.89 times less return on investment than Elektro Redes. But when comparing it to its historical volatility, Rio Paranapanema Energia is 1.78 times less risky than Elektro Redes. It trades about 0.05 of its potential returns per unit of risk. Elektro Redes SA is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  3,700  in Elektro Redes SA on October 3, 2024 and sell it today you would earn a total of  1,380  from holding Elektro Redes SA or generate 37.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	86.34%
Values	Daily Returns

Rio Paranapanema Energia  vs.  Elektro Redes SA

Rio Paranapanema Energia

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Paranapanema Energia are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rio Paranapanema unveiled solid returns over the last few months and may actually be approaching a breakup point.

Elektro Redes SA

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Elektro Redes SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Elektro Redes unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Rio Paranapanema and Elektro Redes

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

The idea behind Rio Paranapanema Energia and Elektro Redes 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.

Check out your portfolio center.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.