Correlation Between Centrais Electricas and Consumers Energy

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

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

Diversification Opportunities for Centrais Electricas and Consumers Energy

0.02

Correlation Coefficient

Centrais Electricas  Consumers Energy

Significant diversification

The 3 months correlation between Centrais and Consumers is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Electricas Brasileira and Consumers Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Consumers Energy and Centrais Electricas 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 Electricas Brasileiras are associated (or correlated) with Consumers Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Consumers Energy has no effect on the direction of Centrais Electricas i.e., Centrais Electricas and Consumers Energy go up and down completely randomly.

Pair Corralation between Centrais Electricas and Consumers Energy

Considering the 90-day investment horizon Centrais Electricas Brasileiras is expected to under-perform the Consumers Energy. In addition to that, Centrais Electricas is 1.3 times more volatile than Consumers Energy. It trades about -0.24 of its total potential returns per unit of risk. Consumers Energy is currently generating about 0.01 per unit of volatility. If you would invest  8,044  in Consumers Energy on September 4, 2024 and sell it today you would earn a total of  22.00  from holding Consumers Energy or generate 0.27% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Centrais Electricas Brasileira  vs.  Consumers Energy

Centrais Electricas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centrais Electricas Brasileiras has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's fundamental drivers remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Consumers Energy

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Consumers Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Consumers Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Centrais Electricas and Consumers Energy

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

The idea behind Centrais Electricas Brasileiras and Consumers 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.