Correlation Between Semapa and EDP Renovaveis

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

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

Diversification Opportunities for Semapa and EDP Renovaveis

-0.47

Correlation Coefficient

Semapa  EDP Renovaveis

Very good diversification

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

Pair Corralation between Semapa and EDP Renovaveis

Assuming the 90 days trading horizon Semapa is expected to generate 0.53 times more return on investment than EDP Renovaveis. However, Semapa is 1.9 times less risky than EDP Renovaveis. It trades about 0.15 of its potential returns per unit of risk. EDP Renovaveis is currently generating about -0.13 per unit of risk. If you would invest  1,418  in Semapa on January 26, 2024 and sell it today you would earn a total of  142.00  from holding Semapa or generate 10.01% return on investment over 90 days.

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

Semapa  vs.  EDP Renovaveis

Semapa

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Semapa are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain primary indicators, Semapa may actually be approaching a critical reversion point that can send shares even higher in May 2024.

EDP Renovaveis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Renovaveis has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in May 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Semapa and EDP Renovaveis

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

The idea behind Semapa and EDP Renovaveis 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.