Correlation Between MGE Energy and Equatorial Energia

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

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

Diversification Opportunities for MGE Energy and Equatorial Energia

-0.47

Correlation Coefficient

MGE Energy  Equatorial Energia

Very good diversification

The 3 months correlation between MGE and Equatorial is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding MGE Energy and Equatorial Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equatorial Energia and MGE Energy 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 MGE Energy 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 MGE Energy i.e., MGE Energy and Equatorial Energia go up and down completely randomly.

Pair Corralation between MGE Energy and Equatorial Energia

Given the investment horizon of 90 days MGE Energy is expected to generate 0.68 times more return on investment than Equatorial Energia. However, MGE Energy is 1.48 times less risky than Equatorial Energia. It trades about -0.03 of its potential returns per unit of risk. Equatorial Energia SA is currently generating about -0.07 per unit of risk. If you would invest  8,934  in MGE Energy on August 6, 2024 and sell it today you would lose (79.00) from holding MGE Energy or give up 0.88% of portfolio value over 90 days.

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

MGE Energy  vs.  Equatorial Energia SA

MGE Energy

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in MGE Energy are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, MGE Energy is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Equatorial Energia

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Equatorial Energia SA are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Equatorial Energia may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with MGE Energy and Equatorial Energia

The main advantage of trading using opposite MGE Energy and Equatorial Energia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MGE Energy 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 MGE Energy 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.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.