Correlation Between Companhia and Light SA
Can any of the company-specific risk be diversified away by investing in both Companhia 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 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 de Saneamento and Light SA, you can compare the effects of market volatilities on Companhia 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 with a short position of Light SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Companhia and Light SA.
Diversification Opportunities for Companhia and Light SA
Good diversification
The 3 months correlation between Companhia and Light is -0.03. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento and Light SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Light SA and Companhia 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 de Saneamento 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 i.e., Companhia and Light SA go up and down completely randomly.
Pair Corralation between Companhia and Light SA
Assuming the 90 days trading horizon Companhia de Saneamento is expected to generate 0.38 times more return on investment than Light SA. However, Companhia de Saneamento is 2.66 times less risky than Light SA. It trades about 0.1 of its potential returns per unit of risk. Light SA is currently generating about -0.01 per unit of risk. If you would invest 6,675 in Companhia de Saneamento on September 2, 2024 and sell it today you would earn a total of 2,623 from holding Companhia de Saneamento or generate 39.3% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Companhia de Saneamento vs. Light SA
Performance |
| Timeline |
| Companhia de Saneamento |
| Light SA |
Companhia and Light SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Companhia and Light SA
The main advantage of trading using opposite Companhia and Light SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Companhia 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 vs. BB Seguridade Participacoes | Companhia vs. Engie Brasil Energia | Companhia vs. CTEEP Companhia | Companhia vs. Itasa Investimentos |
| 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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