Correlation Between Gafisa SA and CPFL Energia

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

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

Diversification Opportunities for Gafisa SA and CPFL Energia

0.25

Correlation Coefficient

Gafisa SA  CPFL Energia

Modest diversification

The 3 months correlation between Gafisa and CPFL is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Gafisa SA and CPFL Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPFL Energia SA and Gafisa SA 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 Gafisa SA are associated (or correlated) with CPFL Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPFL Energia SA has no effect on the direction of Gafisa SA i.e., Gafisa SA and CPFL Energia go up and down completely randomly.

Pair Corralation between Gafisa SA and CPFL Energia

Assuming the 90 days trading horizon Gafisa SA is expected to generate 6.32 times more return on investment than CPFL Energia. However, Gafisa SA is 6.32 times more volatile than CPFL Energia SA. It trades about 0.15 of its potential returns per unit of risk. CPFL Energia SA is currently generating about 0.24 per unit of risk. If you would invest  118.00  in Gafisa SA on December 30, 2024 and sell it today you would earn a total of  93.00  from holding Gafisa SA or generate 78.81% return on investment over 90 days.

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

Gafisa SA  vs.  CPFL Energia SA

Gafisa SA

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Gafisa SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Gafisa SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

CPFL Energia SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in CPFL Energia SA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, CPFL Energia unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Gafisa SA and CPFL Energia

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

The idea behind Gafisa SA and CPFL Energia 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.