Correlation Between Nextera Energy and Engie Brasil

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

By analyzing existing cross correlation between Nextera Energy and Engie Brasil Energia, you can compare the effects of market volatilities on Nextera Energy and Engie Brasil 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 Engie Brasil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nextera Energy and Engie Brasil.

Diversification Opportunities for Nextera Energy and Engie Brasil

0.25

Correlation Coefficient

Nextera Energy  Engie Brasil

Modest diversification

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

Pair Corralation between Nextera Energy and Engie Brasil

Assuming the 90 days trading horizon Nextera Energy is expected to under-perform the Engie Brasil. But the preferred stock apears to be less risky and, when comparing its historical volatility, Nextera Energy is 1.55 times less risky than Engie Brasil. The preferred stock trades about -0.05 of its potential returns per unit of risk. The Engie Brasil Energia is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  623.00  in Engie Brasil Energia on November 28, 2024 and sell it today you would earn a total of  37.00  from holding Engie Brasil Energia or generate 5.94% return on investment over 90 days.

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

Nextera Energy  vs.  Engie Brasil Energia

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.

Engie Brasil Energia

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Engie Brasil Energia are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Engie Brasil may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Nextera Energy and Engie Brasil

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

The idea behind Nextera Energy and Engie Brasil Energia 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.