Correlation Between Energisa and Rede Energia

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

By analyzing existing cross correlation between Energisa SA and Rede Energia Participaes, you can compare the effects of market volatilities on Energisa and Rede 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 Energisa with a short position of Rede Energia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energisa and Rede Energia.

Diversification Opportunities for Energisa and Rede Energia

0.72

Correlation Coefficient

Energisa  Rede Energia

Poor diversification

The 3 months correlation between Energisa and Rede is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Energisa SA and Rede Energia Participaes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rede Energia Participaes and Energisa 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 Energisa SA are associated (or correlated) with Rede Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rede Energia Participaes has no effect on the direction of Energisa i.e., Energisa and Rede Energia go up and down completely randomly.

Pair Corralation between Energisa and Rede Energia

Assuming the 90 days trading horizon Energisa SA is expected to under-perform the Rede Energia. In addition to that, Energisa is 1.56 times more volatile than Rede Energia Participaes. It trades about -0.15 of its total potential returns per unit of risk. Rede Energia Participaes is currently generating about -0.13 per unit of volatility. If you would invest  667.00  in Rede Energia Participaes on September 5, 2024 and sell it today you would lose (22.00) from holding Rede Energia Participaes or give up 3.3% of portfolio value over 90 days.

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

Energisa SA  vs.  Rede Energia Participaes

Energisa SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energisa SA 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 January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Rede Energia Participaes

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Energisa and Rede Energia

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

The idea behind Energisa SA and Rede Energia Participaes 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.