Correlation Between Centrais Electricas and Nextera Energy

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

Diversification Opportunities for Centrais Electricas and Nextera Energy

0.84

Correlation Coefficient

Centrais Electricas  Nextera Energy

Very poor diversification

The 3 months correlation between Centrais and Nextera is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Electricas Brasileira and Nextera Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nextera 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 Nextera Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nextera Energy has no effect on the direction of Centrais Electricas i.e., Centrais Electricas and Nextera Energy go up and down completely randomly.

Pair Corralation between Centrais Electricas and Nextera Energy

Considering the 90-day investment horizon Centrais Electricas Brasileiras is expected to under-perform the Nextera Energy. In addition to that, Centrais Electricas is 1.28 times more volatile than Nextera Energy. It trades about -0.2 of its total potential returns per unit of risk. Nextera Energy is currently generating about -0.13 per unit of volatility. If you would invest  8,440  in Nextera Energy on September 17, 2024 and sell it today you would lose (1,082) from holding Nextera Energy or give up 12.82% of portfolio value over 90 days.

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

Centrais Electricas Brasileira  vs.  Nextera 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.

Nextera Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextera Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Centrais Electricas and Nextera Energy

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

The idea behind Centrais Electricas Brasileiras and Nextera 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.