Correlation Between Centrais Electricas and Northland Power
Can any of the company-specific risk be diversified away by investing in both Centrais Electricas and Northland Power 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 Electricas and Northland Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Centrais Electricas Brasileiras and Northland Power, you can compare the effects of market volatilities on Centrais Electricas and Northland Power 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 Electricas with a short position of Northland Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Centrais Electricas and Northland Power.
Diversification Opportunities for Centrais Electricas and Northland Power
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Centrais and Northland is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Electricas Brasileira and Northland Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northland Power and Centrais Electricas 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 Electricas Brasileiras are associated (or correlated) with Northland Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northland Power has no effect on the direction of Centrais Electricas i.e., Centrais Electricas and Northland Power go up and down completely randomly.
Pair Corralation between Centrais Electricas and Northland Power
Considering the 90-day investment horizon Centrais Electricas Brasileiras is expected to under-perform the Northland Power. But the stock apears to be less risky and, when comparing its historical volatility, Centrais Electricas Brasileiras is 1.26 times less risky than Northland Power. The stock trades about -0.35 of its potential returns per unit of risk. The Northland Power is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest 1,533 in Northland Power on September 3, 2024 and sell it today you would lose (93.00) from holding Northland Power or give up 6.07% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Centrais Electricas Brasileira vs. Northland Power
Performance |
| Timeline |
| Centrais Electricas |
| Northland Power |
Centrais Electricas and Northland Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Centrais Electricas and Northland Power
The main advantage of trading using opposite Centrais Electricas and Northland Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Centrais Electricas position performs unexpectedly, Northland Power 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 Northland Power will offset losses from the drop in Northland Power's long position.| Centrais Electricas vs. Genie Energy | Centrais Electricas vs. Central Puerto SA | Centrais Electricas vs. Korea Electric Power | Centrais Electricas vs. Empresa Distribuidora y |
| Northland Power vs. Tidewater Renewables | Northland Power vs. Renew Energy Global | Northland Power vs. Clearway Energy | Northland Power vs. Brookfield Renewable Partners |
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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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