Correlation Between Contact Energy and POLENERGIA

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

By analyzing existing cross correlation between Contact Energy Limited and POLENERGIA SA ZY, you can compare the effects of market volatilities on Contact Energy and POLENERGIA 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 Contact Energy with a short position of POLENERGIA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Contact Energy and POLENERGIA.

Diversification Opportunities for Contact Energy and POLENERGIA

0.21

Correlation Coefficient

Contact Energy  POLENERGIA

Modest diversification

The 3 months correlation between Contact and POLENERGIA is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Contact Energy Limited and POLENERGIA SA ZY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on POLENERGIA SA ZY and Contact 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 Contact Energy Limited are associated (or correlated) with POLENERGIA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of POLENERGIA SA ZY has no effect on the direction of Contact Energy i.e., Contact Energy and POLENERGIA go up and down completely randomly.

Pair Corralation between Contact Energy and POLENERGIA

Assuming the 90 days horizon Contact Energy is expected to generate 1.49 times less return on investment than POLENERGIA. But when comparing it to its historical volatility, Contact Energy Limited is 1.06 times less risky than POLENERGIA. It trades about 0.03 of its potential returns per unit of risk. POLENERGIA SA ZY is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,570  in POLENERGIA SA ZY on September 19, 2024 and sell it today you would earn a total of  60.00  from holding POLENERGIA SA ZY or generate 3.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Contact Energy Limited  vs.  POLENERGIA SA ZY

Contact Energy

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Contact Energy Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Contact Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

POLENERGIA SA ZY

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in POLENERGIA SA ZY are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, POLENERGIA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Contact Energy and POLENERGIA

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

The idea behind Contact Energy Limited and POLENERGIA SA ZY 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.