Correlation Between Energy Of and Companhia Paranaense

Can any of the company-specific risk be diversified away by investing in both Energy Of and Companhia Paranaense 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 Energy Of and Companhia Paranaense into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Energy of Minas and Companhia Paranaense de, you can compare the effects of market volatilities on Energy Of and Companhia Paranaense 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 Energy Of with a short position of Companhia Paranaense. Check out your portfolio center. Please also check ongoing floating volatility patterns of Energy Of and Companhia Paranaense.

Diversification Opportunities for Energy Of and Companhia Paranaense

0.6

Correlation Coefficient

Energy Of  Companhia Paranaense

Poor diversification

The 3 months correlation between Energy and Companhia is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Energy of Minas and Companhia Paranaense de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Paranaense and Energy Of 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 Energy of Minas are associated (or correlated) with Companhia Paranaense. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Paranaense has no effect on the direction of Energy Of i.e., Energy Of and Companhia Paranaense go up and down completely randomly.

Pair Corralation between Energy Of and Companhia Paranaense

Assuming the 90 days horizon Energy of Minas is expected to generate 0.65 times more return on investment than Companhia Paranaense. However, Energy of Minas is 1.54 times less risky than Companhia Paranaense. It trades about -0.09 of its potential returns per unit of risk. Companhia Paranaense de is currently generating about -0.07 per unit of risk. If you would invest  249.00  in Energy of Minas on September 24, 2024 and sell it today you would lose (10.00) from holding Energy of Minas or give up 4.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Energy of Minas  vs.  Companhia Paranaense de

Energy of Minas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy of Minas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Energy Of is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Companhia Paranaense

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia Paranaense de has generated negative risk-adjusted returns adding no value to investors with long positions. Even with conflicting performance in the last few months, the Stock's essential indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Energy Of and Companhia Paranaense

The main advantage of trading using opposite Energy Of and Companhia Paranaense positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy Of position performs unexpectedly, Companhia Paranaense 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 Companhia Paranaense will offset losses from the drop in Companhia Paranaense's long position.

The idea behind Energy of Minas and Companhia Paranaense de 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.