Correlation Between CME and Energisa
Can any of the company-specific risk be diversified away by investing in both CME and Energisa 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 CME and Energisa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CME Group and Energisa SA, you can compare the effects of market volatilities on CME and Energisa 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 CME with a short position of Energisa. Check out your portfolio center. Please also check ongoing floating volatility patterns of CME and Energisa.
Diversification Opportunities for CME and Energisa
Pay attention - limited upside
The 3 months correlation between CME and Energisa is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding CME Group and Energisa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energisa SA and CME 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 CME Group are associated (or correlated) with Energisa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energisa SA has no effect on the direction of CME i.e., CME and Energisa go up and down completely randomly.
Pair Corralation between CME and Energisa
Assuming the 90 days trading horizon CME Group is expected to generate 0.81 times more return on investment than Energisa. However, CME Group is 1.23 times less risky than Energisa. It trades about 0.09 of its potential returns per unit of risk. Energisa SA is currently generating about -0.07 per unit of risk. If you would invest 26,000 in CME Group on September 2, 2024 and sell it today you would earn a total of 7,199 from holding CME Group or generate 27.69% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
CME Group vs. Energisa SA
Performance |
| Timeline |
| CME Group |
| Energisa SA |
CME and Energisa Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CME and Energisa
The main advantage of trading using opposite CME and Energisa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CME position performs unexpectedly, Energisa 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 Energisa will offset losses from the drop in Energisa's long position.The idea behind CME Group and Energisa SA 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.| Energisa vs. Equatorial Energia SA | Energisa vs. CPFL Energia SA | Energisa vs. Eneva SA | Energisa vs. Companhia de Saneamento |
Check out your portfolio center.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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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