Correlation Between Engie Brasil and Centrais Electricas

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

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

Diversification Opportunities for Engie Brasil and Centrais Electricas

0.96

Correlation Coefficient

Engie Brasil  Centrais Electricas

Almost no diversification

The 3 months correlation between Engie and Centrais is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Engie Brasil Energia and Centrais Electricas Brasileira in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Electricas and Engie Brasil 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 Engie Brasil Energia are associated (or correlated) with Centrais Electricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Electricas has no effect on the direction of Engie Brasil i.e., Engie Brasil and Centrais Electricas go up and down completely randomly.

Pair Corralation between Engie Brasil and Centrais Electricas

Assuming the 90 days horizon Engie Brasil Energia is expected to generate 1.06 times more return on investment than Centrais Electricas. However, Engie Brasil is 1.06 times more volatile than Centrais Electricas Brasileiras. It trades about -0.05 of its potential returns per unit of risk. Centrais Electricas Brasileiras is currently generating about -0.07 per unit of risk. If you would invest  831.00  in Engie Brasil Energia on September 4, 2024 and sell it today you would lose (226.00) from holding Engie Brasil Energia or give up 27.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.6%
Values	Daily Returns

Engie Brasil Energia  vs.  Centrais Electricas Brasileira

Engie Brasil Energia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Engie Brasil Energia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak 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.

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.

Pair Trading with Engie Brasil and Centrais Electricas

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

The idea behind Engie Brasil Energia and Centrais Electricas Brasileiras 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.