Correlation Between CTEEP Companhia and Rio Paranapanema

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

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

Diversification Opportunities for CTEEP Companhia and Rio Paranapanema

-0.64

Correlation Coefficient

CTEEP Companhia  Rio Paranapanema

Excellent diversification

The 3 months correlation between CTEEP and Rio is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding CTEEP Companhia and Rio Paranapanema Energia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rio Paranapanema Energia and CTEEP Companhia 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 CTEEP Companhia are associated (or correlated) with Rio Paranapanema. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rio Paranapanema Energia has no effect on the direction of CTEEP Companhia i.e., CTEEP Companhia and Rio Paranapanema go up and down completely randomly.

Pair Corralation between CTEEP Companhia and Rio Paranapanema

Assuming the 90 days trading horizon CTEEP Companhia is expected to under-perform the Rio Paranapanema. But the stock apears to be less risky and, when comparing its historical volatility, CTEEP Companhia is 2.64 times less risky than Rio Paranapanema. The stock trades about -0.09 of its potential returns per unit of risk. The Rio Paranapanema Energia is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,344  in Rio Paranapanema Energia on September 13, 2024 and sell it today you would earn a total of  856.00  from holding Rio Paranapanema Energia or generate 36.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.32%
Values	Daily Returns

CTEEP Companhia  vs.  Rio Paranapanema Energia

CTEEP Companhia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CTEEP Companhia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CTEEP Companhia is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Rio Paranapanema Energia

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Rio Paranapanema Energia are ranked lower than 10 (%) 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.

Pair Trading with CTEEP Companhia and Rio Paranapanema

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

The idea behind CTEEP Companhia and Rio Paranapanema 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.