Correlation Between Equatorial Energia and Genie Energy

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

Diversification Opportunities for Equatorial Energia and Genie Energy

0.76

Correlation Coefficient

Equatorial Energia  Genie Energy

Poor diversification

The 3 months correlation between Equatorial and Genie is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Equatorial Energia SA and Genie Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Genie Energy 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 Genie Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Genie Energy has no effect on the direction of Equatorial Energia i.e., Equatorial Energia and Genie Energy go up and down completely randomly.

Pair Corralation between Equatorial Energia and Genie Energy

Assuming the 90 days horizon Equatorial Energia SA is expected to under-perform the Genie Energy. In addition to that, Equatorial Energia is 1.43 times more volatile than Genie Energy. It trades about -0.12 of its total potential returns per unit of risk. Genie Energy is currently generating about -0.13 per unit of volatility. If you would invest  1,740  in Genie Energy on September 12, 2024 and sell it today you would lose (267.00) from holding Genie Energy or give up 15.34% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Equatorial Energia SA  vs.  Genie Energy

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 weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Genie Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Genie Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Equatorial Energia and Genie Energy

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

The idea behind Equatorial Energia SA and Genie Energy 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.