Correlation Between Telefnica Brasil and Auren Energia

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

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

Diversification Opportunities for Telefnica Brasil and Auren Energia

0.82

Correlation Coefficient

Telefnica Brasil  Auren Energia

Very poor diversification

The 3 months correlation between Telefnica and Auren is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Telefnica Brasil SA and Auren Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Auren Energia SA and Telefnica Brasil 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 Telefnica Brasil SA are associated (or correlated) with Auren Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Auren Energia SA has no effect on the direction of Telefnica Brasil i.e., Telefnica Brasil and Auren Energia go up and down completely randomly.

Pair Corralation between Telefnica Brasil and Auren Energia

Assuming the 90 days trading horizon Telefnica Brasil is expected to generate 426.3 times less return on investment than Auren Energia. But when comparing it to its historical volatility, Telefnica Brasil SA is 72.45 times less risky than Auren Energia. It trades about 0.02 of its potential returns per unit of risk. Auren Energia SA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,267  in Auren Energia SA on October 24, 2024 and sell it today you would lose (488.00) from holding Auren Energia SA or give up 38.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.8%
Values	Daily Returns

Telefnica Brasil SA  vs.  Auren Energia SA

Telefnica Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

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

Auren Energia SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Auren Energia SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Telefnica Brasil and Auren Energia

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

The idea behind Telefnica Brasil SA and Auren 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.