Correlation Between Companhia Paranaense and Light SA
Can any of the company-specific risk be diversified away by investing in both Companhia Paranaense and Light SA 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 Companhia Paranaense and Light SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Companhia Paranaense de and Light SA, you can compare the effects of market volatilities on Companhia Paranaense and Light SA 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 Companhia Paranaense with a short position of Light SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Companhia Paranaense and Light SA.
Diversification Opportunities for Companhia Paranaense and Light SA
0.88 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Companhia and Light is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Companhia Paranaense de and Light SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Light SA and Companhia Paranaense 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 Companhia Paranaense de are associated (or correlated) with Light SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Light SA has no effect on the direction of Companhia Paranaense i.e., Companhia Paranaense and Light SA go up and down completely randomly.
Pair Corralation between Companhia Paranaense and Light SA
Assuming the 90 days trading horizon Companhia Paranaense is expected to generate 1.04 times less return on investment than Light SA. But when comparing it to its historical volatility, Companhia Paranaense de is 2.83 times less risky than Light SA. It trades about 0.05 of its potential returns per unit of risk. Light SA is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest 487.00 in Light SA on September 2, 2024 and sell it today you would lose (53.00) from holding Light SA or give up 10.88% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Companhia Paranaense de vs. Light SA
Performance |
| Timeline |
| Companhia Paranaense |
| Light SA |
Companhia Paranaense and Light SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Companhia Paranaense and Light SA
The main advantage of trading using opposite Companhia Paranaense and Light SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Companhia Paranaense position performs unexpectedly, Light SA 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 Light SA will offset losses from the drop in Light SA's long position.| Companhia Paranaense vs. Companhia Paranaense de | Companhia Paranaense vs. CTEEP Companhia | Companhia Paranaense vs. CPFL Energia SA |
| Light SA vs. CPFL Energia SA | Light SA vs. Companhia Energtica de | Light SA vs. Centrais Eltricas Brasileiras | Light SA 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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