Correlation Between Rossi Residencial and CPFL Energia

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

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

Diversification Opportunities for Rossi Residencial and CPFL Energia

0.41

Correlation Coefficient

Rossi Residencial  CPFL Energia

Very weak diversification

The 3 months correlation between Rossi and CPFL is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Rossi Residencial 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 Rossi Residencial 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 Rossi Residencial 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 Rossi Residencial i.e., Rossi Residencial and CPFL Energia go up and down completely randomly.

Pair Corralation between Rossi Residencial and CPFL Energia

Assuming the 90 days trading horizon Rossi Residencial is expected to generate 2.86 times less return on investment than CPFL Energia. In addition to that, Rossi Residencial is 1.98 times more volatile than CPFL Energia SA. It trades about 0.04 of its total potential returns per unit of risk. CPFL Energia SA is currently generating about 0.24 per unit of volatility. If you would invest  3,159  in CPFL Energia SA on December 30, 2024 and sell it today you would earn a total of  623.00  from holding CPFL Energia SA or generate 19.72% return on investment over 90 days.

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

Rossi Residencial SA  vs.  CPFL Energia SA

Rossi Residencial

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Rossi Residencial SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rossi Residencial may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Rossi Residencial and CPFL Energia

The main advantage of trading using opposite Rossi Residencial and CPFL Energia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rossi Residencial 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 Rossi Residencial 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.