Correlation Between EDP - and Public Service

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

By analyzing existing cross correlation between EDP Energias and Public Service, you can compare the effects of market volatilities on EDP - and Public Service 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 EDP - with a short position of Public Service. Check out your portfolio center. Please also check ongoing floating volatility patterns of EDP - and Public Service.

Diversification Opportunities for EDP - and Public Service

0.21

Correlation Coefficient

EDP -  Public Service

Modest diversification

The 3 months correlation between EDP and Public is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias and Public Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Public Service and EDP - 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 EDP Energias are associated (or correlated) with Public Service. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Public Service has no effect on the direction of EDP - i.e., EDP - and Public Service go up and down completely randomly.

Pair Corralation between EDP - and Public Service

Assuming the 90 days horizon EDP Energias is expected to generate 1.27 times more return on investment than Public Service. However, EDP - is 1.27 times more volatile than Public Service. It trades about 0.04 of its potential returns per unit of risk. Public Service is currently generating about 0.03 per unit of risk. If you would invest  379.00  in EDP Energias on April 7, 2024 and sell it today you would earn a total of  10.00  from holding EDP Energias or generate 2.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	73.81%
Values	Daily Returns

EDP Energias  vs.  Public Service

EDP Energias

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in EDP Energias are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, EDP - is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Public Service

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Public Service are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Public Service is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with EDP - and Public Service

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

The idea behind EDP Energias and Public Service 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.