Correlation Between Companhia and CPFL Energia

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

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

Diversification Opportunities for Companhia and CPFL Energia

0.47

Correlation Coefficient

Companhia  CPFL Energia

Very weak diversification

The 3 months correlation between Companhia and CPFL is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Companhia de Saneamento and CPFL Energia SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CPFL Energia SA and Companhia 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 Companhia de Saneamento are associated (or correlated) with CPFL Energia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CPFL Energia SA has no effect on the direction of Companhia i.e., Companhia and CPFL Energia go up and down completely randomly.

Pair Corralation between Companhia and CPFL Energia

Assuming the 90 days trading horizon Companhia de Saneamento is expected to generate 1.54 times more return on investment than CPFL Energia. However, Companhia is 1.54 times more volatile than CPFL Energia SA. It trades about 0.17 of its potential returns per unit of risk. CPFL Energia SA is currently generating about 0.08 per unit of risk. If you would invest  2,091  in Companhia de Saneamento on April 25, 2025 and sell it today you would earn a total of  491.00  from holding Companhia de Saneamento or generate 23.48% return on investment over 90 days.

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

Companhia de Saneamento  vs.  CPFL Energia SA

Companhia de Saneamento

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia de Saneamento are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Companhia unveiled solid returns over the last few months and may actually be approaching a breakup point.

CPFL Energia SA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in CPFL Energia SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, CPFL Energia may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Pair Trading with Companhia and CPFL Energia

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

The idea behind Companhia de Saneamento and CPFL 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.