Correlation Between RWE AG and Companhia Paranaense

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

By analyzing existing cross correlation between RWE AG PK and Companhia Paranaense de, you can compare the effects of market volatilities on RWE AG and Companhia Paranaense 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 RWE AG with a short position of Companhia Paranaense. Check out your portfolio center. Please also check ongoing floating volatility patterns of RWE AG and Companhia Paranaense.

Diversification Opportunities for RWE AG and Companhia Paranaense

0.9

Correlation Coefficient

RWE AG  Companhia Paranaense

Almost no diversification

The 3 months correlation between RWE and Companhia is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG PK and Companhia Paranaense de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Paranaense and RWE AG 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 RWE AG PK are associated (or correlated) with Companhia Paranaense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Paranaense has no effect on the direction of RWE AG i.e., RWE AG and Companhia Paranaense go up and down completely randomly.

Pair Corralation between RWE AG and Companhia Paranaense

Assuming the 90 days horizon RWE AG PK is expected to generate 0.74 times more return on investment than Companhia Paranaense. However, RWE AG PK is 1.35 times less risky than Companhia Paranaense. It trades about -0.11 of its potential returns per unit of risk. Companhia Paranaense de is currently generating about -0.12 per unit of risk. If you would invest  3,617  in RWE AG PK on September 12, 2024 and sell it today you would lose (365.00) from holding RWE AG PK or give up 10.09% of portfolio value over 90 days.

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

RWE AG PK  vs.  Companhia Paranaense de

RWE AG PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days RWE AG PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Companhia Paranaense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Paranaense de has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's essential indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with RWE AG and Companhia Paranaense

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

The idea behind RWE AG PK and Companhia Paranaense de 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.