Correlation Between Equatorial Energia and Centrais Eltricas

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

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

Diversification Opportunities for Equatorial Energia and Centrais Eltricas

0.84

Correlation Coefficient

Equatorial Energia  Centrais Eltricas

Very poor diversification

The 3 months correlation between Equatorial and Centrais is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Equatorial Energia SA and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Eltricas and Equatorial Energia 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 Equatorial Energia SA are associated (or correlated) with Centrais Eltricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Eltricas has no effect on the direction of Equatorial Energia i.e., Equatorial Energia and Centrais Eltricas go up and down completely randomly.

Pair Corralation between Equatorial Energia and Centrais Eltricas

Assuming the 90 days trading horizon Equatorial Energia SA is expected to generate 1.24 times more return on investment than Centrais Eltricas. However, Equatorial Energia is 1.24 times more volatile than Centrais Eltricas Brasileiras. It trades about -0.12 of its potential returns per unit of risk. Centrais Eltricas Brasileiras is currently generating about -0.23 per unit of risk. If you would invest  3,422  in Equatorial Energia SA on September 3, 2024 and sell it today you would lose (361.00) from holding Equatorial Energia SA or give up 10.55% of portfolio value over 90 days.

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

Equatorial Energia SA  vs.  Centrais Eltricas Brasileiras

Equatorial Energia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equatorial Energia SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

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 January 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Equatorial Energia and Centrais Eltricas

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

The idea behind Equatorial Energia SA and Centrais Eltricas 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .