Correlation Between EDP Energias and Companhia Paranaense

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

By analyzing existing cross correlation between EDP Energias de and Companhia Paranaense de, you can compare the effects of market volatilities on EDP Energias and Companhia Paranaense 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 EDP Energias with a short position of Companhia Paranaense. Check out your portfolio center. Please also check ongoing floating volatility patterns of EDP Energias and Companhia Paranaense.

Diversification Opportunities for EDP Energias and Companhia Paranaense

0.91

Correlation Coefficient

EDP Energias  Companhia Paranaense

Almost no diversification

The 3 months correlation between EDP and Companhia is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias de and Companhia Paranaense de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Paranaense and EDP Energias 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 EDP Energias de are associated (or correlated) with Companhia Paranaense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Paranaense has no effect on the direction of EDP Energias i.e., EDP Energias and Companhia Paranaense go up and down completely randomly.

Pair Corralation between EDP Energias and Companhia Paranaense

Assuming the 90 days horizon EDP Energias de is expected to under-perform the Companhia Paranaense. But the pink sheet apears to be less risky and, when comparing its historical volatility, EDP Energias de is 1.15 times less risky than Companhia Paranaense. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Companhia Paranaense de is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  688.00  in Companhia Paranaense de on September 5, 2024 and sell it today you would lose (42.00) from holding Companhia Paranaense de or give up 6.1% of portfolio value over 90 days.

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

EDP Energias de  vs.  Companhia Paranaense de

EDP Energias de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Energias de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly 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.

Companhia Paranaense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Paranaense de has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's essential indicators 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.

Pair Trading with EDP Energias and Companhia Paranaense

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

The idea behind EDP Energias de and Companhia Paranaense de 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.