Correlation Between Connecticut Light and Equatorial Energia

Can any of the company-specific risk be diversified away by investing in both Connecticut Light and Equatorial Energia 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 Connecticut Light and Equatorial Energia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between The Connecticut Light and Equatorial Energia SA, you can compare the effects of market volatilities on Connecticut Light and Equatorial Energia 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 Connecticut Light with a short position of Equatorial Energia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Connecticut Light and Equatorial Energia.

Diversification Opportunities for Connecticut Light and Equatorial Energia

0.08

Correlation Coefficient

Connecticut Light  Equatorial Energia

Significant diversification

The 3 months correlation between Connecticut and Equatorial is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding The Connecticut Light and Equatorial Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equatorial Energia and Connecticut Light 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 The Connecticut Light are associated (or correlated) with Equatorial Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equatorial Energia has no effect on the direction of Connecticut Light i.e., Connecticut Light and Equatorial Energia go up and down completely randomly.

Pair Corralation between Connecticut Light and Equatorial Energia

Assuming the 90 days horizon The Connecticut Light is expected to under-perform the Equatorial Energia. But the pink sheet apears to be less risky and, when comparing its historical volatility, The Connecticut Light is 2.7 times less risky than Equatorial Energia. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Equatorial Energia SA is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  615.00  in Equatorial Energia SA on April 7, 2024 and sell it today you would lose (4.00) from holding Equatorial Energia SA or give up 0.65% of portfolio value over 90 days.

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

The Connecticut Light  vs.  Equatorial Energia SA

Connecticut Light

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Connecticut Light has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Connecticut Light is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Equatorial Energia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Equatorial Energia SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest conflicting performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Connecticut Light and Equatorial Energia

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

The idea behind The Connecticut Light and Equatorial Energia 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.