Correlation Between Consolidated Edison and Centrais Eltricas

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

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

Diversification Opportunities for Consolidated Edison and Centrais Eltricas

-0.65

Correlation Coefficient

Consolidated Edison  Centrais Eltricas

Excellent diversification

The 3 months correlation between Consolidated and Centrais is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Consolidated Edison and Centrais Eltricas Brasileiras in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Centrais Eltricas and Consolidated Edison 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 Consolidated Edison 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 Consolidated Edison i.e., Consolidated Edison and Centrais Eltricas go up and down completely randomly.

Pair Corralation between Consolidated Edison and Centrais Eltricas

Allowing for the 90-day total investment horizon Consolidated Edison is expected to generate 1.61 times less return on investment than Centrais Eltricas. But when comparing it to its historical volatility, Consolidated Edison is 5.61 times less risky than Centrais Eltricas. It trades about 0.08 of its potential returns per unit of risk. Centrais Eltricas Brasileiras is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  778.00  in Centrais Eltricas Brasileiras on February 24, 2024 and sell it today you would earn a total of  1.00  from holding Centrais Eltricas Brasileiras or generate 0.13% return on investment over 90 days.

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

Consolidated Edison  vs.  Centrais Eltricas Brasileiras

Consolidated Edison

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Consolidated Edison are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Consolidated Edison may actually be approaching a critical reversion point that can send shares even higher in June 2024.

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.

Pair Trading with Consolidated Edison and Centrais Eltricas

The main advantage of trading using opposite Consolidated Edison and Centrais Eltricas positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consolidated Edison 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 Consolidated Edison 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.

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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.