Correlation Between Entergy and Centrais Eltricas

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

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

Diversification Opportunities for Entergy and Centrais Eltricas

-0.9

Correlation Coefficient

Entergy  Centrais Eltricas

Pay attention - limited upside

The 3 months correlation between Entergy and Centrais is -0.9. Overlapping area represents the amount of risk that can be diversified away by holding Entergy and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Eltricas and Entergy 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 Entergy 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 Entergy i.e., Entergy and Centrais Eltricas go up and down completely randomly.

Pair Corralation between Entergy and Centrais Eltricas

Considering the 90-day investment horizon Entergy is expected to generate 1.1 times more return on investment than Centrais Eltricas. However, Entergy is 1.1 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 -0.18 per unit of risk. If you would invest  6,350  in Entergy on September 17, 2024 and sell it today you would earn a total of  1,074  from holding Entergy or generate 16.91% return on investment over 90 days.

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

Entergy  vs.  Centrais Eltricas Brasileiras

Entergy

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Entergy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Entergy reported solid returns over the last few months and may actually be approaching a breakup point.

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. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat 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.

Pair Trading with Entergy and Centrais Eltricas

The main advantage of trading using opposite Entergy and Centrais Eltricas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Entergy 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 Entergy 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.