Correlation Between AES and Iberdrola

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

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

Diversification Opportunities for AES and Iberdrola

0.45

Correlation Coefficient

AES  Iberdrola

Very weak diversification

The 3 months correlation between AES and Iberdrola is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding The AES and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and AES 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 The AES are associated (or correlated) with Iberdrola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iberdrola SA has no effect on the direction of AES i.e., AES and Iberdrola go up and down completely randomly.

Pair Corralation between AES and Iberdrola

Considering the 90-day investment horizon AES is expected to generate 5.17 times less return on investment than Iberdrola. In addition to that, AES is 2.17 times more volatile than Iberdrola SA. It trades about 0.01 of its total potential returns per unit of risk. Iberdrola SA is currently generating about 0.17 per unit of volatility. If you would invest  1,351  in Iberdrola SA on December 26, 2024 and sell it today you would earn a total of  180.00  from holding Iberdrola SA or generate 13.32% return on investment over 90 days.

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

The AES  vs.  Iberdrola SA

AES

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The AES are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, AES is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Iberdrola SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Iberdrola SA are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Iberdrola reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AES and Iberdrola

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

The idea behind The AES and Iberdrola 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.