Correlation Between Centrais Elétricas and Equatorial Energia

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Can any of the company-specific risk be diversified away by investing in both Centrais Elétricas and Equatorial Energia 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 Centrais Elétricas and Equatorial Energia into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Centrais Eltricas Brasileiras and Equatorial Energia SA, you can compare the effects of market volatilities on Centrais Elétricas and Equatorial Energia 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 Centrais Elétricas with a short position of Equatorial Energia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Centrais Elétricas and Equatorial Energia.

Diversification Opportunities for Centrais Elétricas and Equatorial Energia

CentraisEquatorialDiversified AwayCentraisEquatorialDiversified Away100%
0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Centrais and Equatorial is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and Equatorial Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equatorial Energia and Centrais Elétricas 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 Centrais Eltricas Brasileiras are associated (or correlated) with Equatorial Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equatorial Energia has no effect on the direction of Centrais Elétricas i.e., Centrais Elétricas and Equatorial Energia go up and down completely randomly.

Pair Corralation between Centrais Elétricas and Equatorial Energia

Assuming the 90 days horizon Centrais Elétricas is expected to generate 1.32 times less return on investment than Equatorial Energia. But when comparing it to its historical volatility, Centrais Eltricas Brasileiras is 1.9 times less risky than Equatorial Energia. It trades about 0.23 of its potential returns per unit of risk. Equatorial Energia SA is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  488.00  in Equatorial Energia SA on November 27, 2024 and sell it today you would earn a total of  55.00  from holding Equatorial Energia SA or generate 11.27% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy95.24%
ValuesDaily Returns

Centrais Eltricas Brasileiras  vs.  Equatorial Energia SA

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -25-20-15-10-50510
JavaScript chart by amCharts 3.21.15EBR-B EQUEY
       Timeline  
Centrais Elétricas 

Risk-Adjusted Performance

Modest

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Centrais Eltricas Brasileiras are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Centrais Elétricas sustained solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb66.577.5
Equatorial Energia 

Risk-Adjusted Performance

Weak

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Equatorial Energia SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Equatorial Energia is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb44.555.5

Centrais Elétricas and Equatorial Energia Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-7.38-5.53-3.68-1.820.01.813.715.617.519.41 0.020.030.040.050.060.07
JavaScript chart by amCharts 3.21.15EBR-B EQUEY
       Returns  

Pair Trading with Centrais Elétricas and Equatorial Energia

The main advantage of trading using opposite Centrais Elétricas and Equatorial Energia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Centrais Elétricas position performs unexpectedly, Equatorial Energia 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 Equatorial Energia will offset losses from the drop in Equatorial Energia's long position.
The idea behind Centrais Eltricas Brasileiras and Equatorial Energia 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.
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 CEOs Directory module to screen CEOs from public companies around the world.

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