Correlation Between Duke Energy and Centrais Eltricas

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

By analyzing existing cross correlation between Duke Energy and Centrais Eltricas Brasileiras, you can compare the effects of market volatilities on Duke Energy and Centrais Eltricas 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 Duke Energy with a short position of Centrais Eltricas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Duke Energy and Centrais Eltricas.

Diversification Opportunities for Duke Energy and Centrais Eltricas

0.4

Correlation Coefficient

Duke Energy  Centrais Eltricas

Very weak diversification

The 3 months correlation between Duke and Centrais is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Duke Energy and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Eltricas and Duke Energy 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 Duke Energy are associated (or correlated) with Centrais Eltricas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Centrais Eltricas has no effect on the direction of Duke Energy i.e., Duke Energy and Centrais Eltricas go up and down completely randomly.

Pair Corralation between Duke Energy and Centrais Eltricas

Assuming the 90 days trading horizon Duke Energy is expected to generate 0.14 times more return on investment than Centrais Eltricas. However, Duke Energy is 6.99 times less risky than Centrais Eltricas. It trades about -0.06 of its potential returns per unit of risk. Centrais Eltricas Brasileiras is currently generating about -0.1 per unit of risk. If you would invest  2,484  in Duke Energy on September 15, 2024 and sell it today you would lose (11.00) from holding Duke Energy or give up 0.44% of portfolio value over 90 days.

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

Duke Energy  vs.  Centrais Eltricas Brasileiras

Duke Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Duke Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong forward-looking signals, Duke Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Centrais Eltricas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Centrais Eltricas Brasileiras has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Duke Energy and Centrais Eltricas

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

The idea behind Duke Energy and Centrais Eltricas Brasileiras 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.