Correlation Between WEG SA and Companhiade Eletricidade

Can any of the company-specific risk be diversified away by investing in both WEG SA and Companhiade Eletricidade 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 WEG SA and Companhiade Eletricidade into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for WEG SA and Companhiade Eletricidade

0.16

Correlation Coefficient

WEG SA  Companhiade Eletricidade

Average diversification

The 3 months correlation between WEG and Companhiade is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding WEG SA and Companhiade Eletricidade do in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhiade Eletricidade and WEG SA 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 WEG SA are associated (or correlated) with Companhiade Eletricidade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhiade Eletricidade has no effect on the direction of WEG SA i.e., WEG SA and Companhiade Eletricidade go up and down completely randomly.

Pair Corralation between WEG SA and Companhiade Eletricidade

Assuming the 90 days trading horizon WEG SA is expected to generate 2.49 times less return on investment than Companhiade Eletricidade. But when comparing it to its historical volatility, WEG SA is 3.83 times less risky than Companhiade Eletricidade. It trades about 0.06 of its potential returns per unit of risk. Companhiade Eletricidade do is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,170  in Companhiade Eletricidade do on October 11, 2024 and sell it today you would earn a total of  705.00  from holding Companhiade Eletricidade do or generate 22.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	91.94%
Values	Daily Returns

WEG SA  vs.  Companhiade Eletricidade do

WEG SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Companhiade Eletricidade

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with WEG SA and Companhiade Eletricidade

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

The idea behind WEG SA and Companhiade Eletricidade do 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.