Correlation Between Equatorial Energia and Localiza Rent

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

Diversification Opportunities for Equatorial Energia and Localiza Rent

0.69

Correlation Coefficient

Equatorial Energia  Localiza Rent

Poor diversification

The 3 months correlation between Equatorial and Localiza is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Equatorial Energia SA and Localiza Rent a in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Localiza Rent a 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 Localiza Rent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Localiza Rent a has no effect on the direction of Equatorial Energia i.e., Equatorial Energia and Localiza Rent go up and down completely randomly.

Pair Corralation between Equatorial Energia and Localiza Rent

Assuming the 90 days trading horizon Equatorial Energia SA is expected to generate 0.54 times more return on investment than Localiza Rent. However, Equatorial Energia SA is 1.86 times less risky than Localiza Rent. It trades about -0.13 of its potential returns per unit of risk. Localiza Rent a is currently generating about -0.11 per unit of risk. If you would invest  3,380  in Equatorial Energia SA on September 12, 2024 and sell it today you would lose (374.00) from holding Equatorial Energia SA or give up 11.07% of portfolio value over 90 days.

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

Equatorial Energia SA  vs.  Localiza Rent a

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.

Localiza Rent a

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Localiza Rent a 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 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 Localiza Rent

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

The idea behind Equatorial Energia SA and Localiza Rent a 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.