Correlation Between Centrais Eltricas and Xcel Energy

Can any of the company-specific risk be diversified away by investing in both Centrais Eltricas and Xcel Energy 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 Xcel Energy 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 Xcel Energy, you can compare the effects of market volatilities on Centrais Eltricas and Xcel Energy 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 Xcel Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Centrais Eltricas and Xcel Energy.

Diversification Opportunities for Centrais Eltricas and Xcel Energy

-0.78

Correlation Coefficient

Centrais Eltricas  Xcel Energy

Pay attention - limited upside

The 3 months correlation between Centrais and Xcel is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and Xcel Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xcel Energy 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 Xcel Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xcel Energy has no effect on the direction of Centrais Eltricas i.e., Centrais Eltricas and Xcel Energy go up and down completely randomly.

Pair Corralation between Centrais Eltricas and Xcel Energy

Assuming the 90 days horizon Centrais Eltricas Brasileiras is expected to under-perform the Xcel Energy. In addition to that, Centrais Eltricas is 1.84 times more volatile than Xcel Energy. It trades about -0.16 of its total potential returns per unit of risk. Xcel Energy is currently generating about 0.08 per unit of volatility. If you would invest  6,406  in Xcel Energy on September 19, 2024 and sell it today you would earn a total of  360.00  from holding Xcel Energy or generate 5.62% return on investment over 90 days.

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

Centrais Eltricas Brasileiras  vs.  Xcel Energy

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 abnormal 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.

Xcel Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xcel Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent technical and fundamental indicators, Xcel Energy is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Centrais Eltricas and Xcel Energy

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

The idea behind Centrais Eltricas Brasileiras and Xcel Energy 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.