Correlation Between National Grid and Engie Brasil

Can any of the company-specific risk be diversified away by investing in both National Grid and Engie Brasil 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 National Grid and Engie Brasil into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between National Grid PLC and Engie Brasil Energia, you can compare the effects of market volatilities on National Grid and Engie Brasil 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 National Grid with a short position of Engie Brasil. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Grid and Engie Brasil.

Diversification Opportunities for National Grid and Engie Brasil

0.89

Correlation Coefficient

National Grid  Engie Brasil

Very poor diversification

The 3 months correlation between National and Engie is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding National Grid PLC and Engie Brasil Energia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engie Brasil Energia and National Grid 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 National Grid PLC are associated (or correlated) with Engie Brasil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engie Brasil Energia has no effect on the direction of National Grid i.e., National Grid and Engie Brasil go up and down completely randomly.

Pair Corralation between National Grid and Engie Brasil

Considering the 90-day investment horizon National Grid PLC is expected to generate 0.73 times more return on investment than Engie Brasil. However, National Grid PLC is 1.37 times less risky than Engie Brasil. It trades about 0.02 of its potential returns per unit of risk. Engie Brasil Energia is currently generating about -0.05 per unit of risk. If you would invest  5,666  in National Grid PLC on September 15, 2024 and sell it today you would earn a total of  297.00  from holding National Grid PLC or generate 5.24% return on investment over 90 days.

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

National Grid PLC  vs.  Engie Brasil Energia

National Grid PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days National Grid PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Engie Brasil Energia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Engie Brasil Energia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly 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 National Grid and Engie Brasil

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

The idea behind National Grid PLC and Engie Brasil Energia 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.