Correlation Between Centrais Eltricas and CPFL Energia

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

Diversification Opportunities for Centrais Eltricas and CPFL Energia

0.71

Correlation Coefficient

Centrais Eltricas  CPFL Energia

Poor diversification

The 3 months correlation between Centrais and CPFL is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and CPFL Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPFL Energia SA 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 CPFL Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPFL Energia SA has no effect on the direction of Centrais Eltricas i.e., Centrais Eltricas and CPFL Energia go up and down completely randomly.

Pair Corralation between Centrais Eltricas and CPFL Energia

Assuming the 90 days trading horizon Centrais Eltricas Brasileiras is expected to under-perform the CPFL Energia. In addition to that, Centrais Eltricas is 1.27 times more volatile than CPFL Energia SA. It trades about -0.25 of its total potential returns per unit of risk. CPFL Energia SA is currently generating about 0.01 per unit of volatility. If you would invest  3,322  in CPFL Energia SA on August 31, 2024 and sell it today you would earn a total of  5.00  from holding CPFL Energia SA or generate 0.15% return on investment over 90 days.

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

Centrais Eltricas Brasileiras  vs.  CPFL Energia SA

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. In spite of uncertain performance in the last few months, the Preferred Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

CPFL Energia SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CPFL Energia SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, CPFL Energia is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Centrais Eltricas and CPFL Energia

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

The idea behind Centrais Eltricas Brasileiras and CPFL Energia SA 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 Stocks Directory module to find actively traded stocks across global markets.