Correlation Between Energia Latina and Enel Chile

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

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

Diversification Opportunities for Energia Latina and Enel Chile

0.85

Correlation Coefficient

Energia Latina  Enel Chile

Very poor diversification

The 3 months correlation between Energia and Enel is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Energia Latina SA and Enel Chile SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enel Chile SA and Energia Latina 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 Energia Latina SA are associated (or correlated) with Enel Chile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enel Chile SA has no effect on the direction of Energia Latina i.e., Energia Latina and Enel Chile go up and down completely randomly.

Pair Corralation between Energia Latina and Enel Chile

Assuming the 90 days trading horizon Energia Latina is expected to generate 2.63 times less return on investment than Enel Chile. But when comparing it to its historical volatility, Energia Latina SA is 3.06 times less risky than Enel Chile. It trades about 0.13 of its potential returns per unit of risk. Enel Chile SA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,902  in Enel Chile SA on September 4, 2024 and sell it today you would earn a total of  498.00  from holding Enel Chile SA or generate 10.16% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.33%
Values	Daily Returns

Energia Latina SA  vs.  Enel Chile SA

Energia Latina SA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energia Latina SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Energia Latina is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Enel Chile SA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Enel Chile SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical indicators, Enel Chile may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Energia Latina and Enel Chile

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

The idea behind Energia Latina SA and Enel Chile 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.