Correlation Between Nextera Energy and Centrais Elétricas

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

By analyzing existing cross correlation between Nextera Energy and Centrais Eltricas Brasileiras, you can compare the effects of market volatilities on Nextera Energy and Centrais Elétricas 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 Nextera Energy with a short position of Centrais Elétricas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nextera Energy and Centrais Elétricas.

Diversification Opportunities for Nextera Energy and Centrais Elétricas

-0.23

Correlation Coefficient

Nextera Energy  Centrais Elétricas

Very good diversification

The 3 months correlation between Nextera and Centrais is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Nextera Energy and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Elétricas and Nextera Energy 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 Nextera Energy are associated (or correlated) with Centrais Elétricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Elétricas has no effect on the direction of Nextera Energy i.e., Nextera Energy and Centrais Elétricas go up and down completely randomly.

Pair Corralation between Nextera Energy and Centrais Elétricas

Assuming the 90 days trading horizon Nextera Energy is expected to under-perform the Centrais Elétricas. But the preferred stock apears to be less risky and, when comparing its historical volatility, Nextera Energy is 1.57 times less risky than Centrais Elétricas. The preferred stock trades about -0.05 of its potential returns per unit of risk. The Centrais Eltricas Brasileiras is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  605.00  in Centrais Eltricas Brasileiras on November 28, 2024 and sell it today you would earn a total of  124.00  from holding Centrais Eltricas Brasileiras or generate 20.5% return on investment over 90 days.

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

Nextera Energy  vs.  Centrais Eltricas Brasileiras

Nextera Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Nextera Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Nextera Energy is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Centrais Elétricas

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Centrais Eltricas Brasileiras are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Centrais Elétricas sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nextera Energy and Centrais Elétricas

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

The idea behind Nextera Energy and Centrais Eltricas Brasileiras 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.