Correlation Between Centrais Eltricas and Central Puerto

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

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

Diversification Opportunities for Centrais Eltricas and Central Puerto

-0.7

Correlation Coefficient

Centrais Eltricas  Central Puerto

Excellent diversification

The 3 months correlation between Centrais and Central is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and Central Puerto SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Central Puerto SA and Centrais Eltricas 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 Eltricas Brasileiras are associated (or correlated) with Central Puerto. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Central Puerto SA has no effect on the direction of Centrais Eltricas i.e., Centrais Eltricas and Central Puerto go up and down completely randomly.

Pair Corralation between Centrais Eltricas and Central Puerto

Assuming the 90 days horizon Centrais Eltricas is expected to generate 10.7 times less return on investment than Central Puerto. But when comparing it to its historical volatility, Centrais Eltricas Brasileiras is 1.15 times less risky than Central Puerto. It trades about 0.01 of its potential returns per unit of risk. Central Puerto SA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  338.00  in Central Puerto SA on February 21, 2024 and sell it today you would earn a total of  688.00  from holding Central Puerto SA or generate 203.55% return on investment over 90 days.

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

Centrais Eltricas Brasileiras  vs.  Central Puerto SA

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 latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Central Puerto SA

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Central Puerto SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Central Puerto unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Centrais Eltricas and Central Puerto

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

The idea behind Centrais Eltricas Brasileiras and Central Puerto SA 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.