Correlation Between Centrais Eltricas and Entergy

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

By analyzing existing cross correlation between Centrais Eltricas Brasileiras and Entergy, you can compare the effects of market volatilities on Centrais Eltricas and Entergy 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 Centrais Eltricas with a short position of Entergy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Centrais Eltricas and Entergy.

Diversification Opportunities for Centrais Eltricas and Entergy

-0.9

Correlation Coefficient

Centrais Eltricas  Entergy

Pay attention - limited upside

The 3 months correlation between Centrais and Entergy is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and Entergy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Entergy and Centrais Eltricas 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 Centrais Eltricas Brasileiras are associated (or correlated) with Entergy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Entergy has no effect on the direction of Centrais Eltricas i.e., Centrais Eltricas and Entergy go up and down completely randomly.

Pair Corralation between Centrais Eltricas and Entergy

Assuming the 90 days horizon Centrais Eltricas Brasileiras is expected to under-perform the Entergy. But the stock apears to be less risky and, when comparing its historical volatility, Centrais Eltricas Brasileiras is 1.09 times less risky than Entergy. The stock trades about -0.17 of its potential returns per unit of risk. The Entergy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  12,743  in Entergy on September 14, 2024 and sell it today you would earn a total of  2,084  from holding Entergy or generate 16.35% return on investment over 90 days.

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

Centrais Eltricas Brasileiras  vs.  Entergy

Centrais Eltricas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centrais Eltricas Brasileiras has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Entergy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Entergy reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Centrais Eltricas and Entergy

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

The idea behind Centrais Eltricas Brasileiras and Entergy 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 Companies Directory module to evaluate performance of over 100,000 Stocks, Funds, and ETFs against different fundamentals.