Correlation Between ISA ENERGIA and Companhia

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

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

Diversification Opportunities for ISA ENERGIA and Companhia

-0.1

Correlation Coefficient

ISA ENERGIA  Companhia

Good diversification

The 3 months correlation between ISA and Companhia is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding ISA ENERGIA BRASIL and Companhia de Saneamento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia de Saneamento and ISA ENERGIA 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 ISA ENERGIA BRASIL are associated (or correlated) with Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia de Saneamento has no effect on the direction of ISA ENERGIA i.e., ISA ENERGIA and Companhia go up and down completely randomly.

Pair Corralation between ISA ENERGIA and Companhia

Assuming the 90 days trading horizon ISA ENERGIA BRASIL is expected to under-perform the Companhia. But the stock apears to be less risky and, when comparing its historical volatility, ISA ENERGIA BRASIL is 1.9 times less risky than Companhia. The stock trades about -0.04 of its potential returns per unit of risk. The Companhia de Saneamento is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  2,062  in Companhia de Saneamento on April 24, 2025 and sell it today you would earn a total of  515.00  from holding Companhia de Saneamento or generate 24.98% return on investment over 90 days.

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

ISA ENERGIA BRASIL  vs.  Companhia de Saneamento

ISA ENERGIA BRASIL

Risk-Adjusted Performance

Very Weak

Over the last 90 days ISA ENERGIA BRASIL has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ISA ENERGIA is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

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 14 (%) 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.

Pair Trading with ISA ENERGIA and Companhia

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

The idea behind ISA ENERGIA BRASIL and Companhia de Saneamento 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.