Correlation Between Centrais Eltricas and Korea Electric

Can any of the company-specific risk be diversified away by investing in both Centrais Eltricas and Korea Electric 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 Korea Electric 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 Korea Electric Power, you can compare the effects of market volatilities on Centrais Eltricas and Korea Electric 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 Korea Electric. Check out your portfolio center. Please also check ongoing floating volatility patterns of Centrais Eltricas and Korea Electric.

Diversification Opportunities for Centrais Eltricas and Korea Electric

0.87

Correlation Coefficient

Centrais Eltricas  Korea Electric

Very poor diversification

The 3 months correlation between Centrais and Korea is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Centrais Eltricas Brasileiras and Korea Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Korea Electric Power 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 Korea Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Korea Electric Power has no effect on the direction of Centrais Eltricas i.e., Centrais Eltricas and Korea Electric go up and down completely randomly.

Pair Corralation between Centrais Eltricas and Korea Electric

Assuming the 90 days horizon Centrais Eltricas Brasileiras is expected to generate 1.33 times more return on investment than Korea Electric. However, Centrais Eltricas is 1.33 times more volatile than Korea Electric Power. It trades about -0.07 of its potential returns per unit of risk. Korea Electric Power is currently generating about -0.15 per unit of risk. If you would invest  914.00  in Centrais Eltricas Brasileiras on February 24, 2024 and sell it today you would lose (135.00) from holding Centrais Eltricas Brasileiras or give up 14.77% of portfolio value over 90 days.

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

Centrais Eltricas Brasileiras  vs.  Korea Electric Power

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 fragile performance in the last few months, the Stock's basic indicators remain somewhat strong which may send shares a bit higher in June 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Korea Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Korea Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in June 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Centrais Eltricas and Korea Electric

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

The idea behind Centrais Eltricas Brasileiras and Korea Electric Power 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.