Correlation Between AES Corp and Iberdrola

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

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

Diversification Opportunities for AES Corp and Iberdrola

0.0

Correlation Coefficient

AES Corp  Iberdrola

Pay attention - limited upside

The 3 months correlation between AES and Iberdrola is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding AES Corp Unit and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and AES Corp 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 AES Corp Unit 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 Corp i.e., AES Corp and Iberdrola go up and down completely randomly.

Pair Corralation between AES Corp and Iberdrola

If you would invest  5,390  in Iberdrola SA on December 29, 2024 and sell it today you would earn a total of  1,102  from holding Iberdrola SA or generate 20.45% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

AES Corp Unit  vs.  Iberdrola SA

AES Corp Unit

Risk-Adjusted Performance

Very Weak

Over the last 90 days AES Corp Unit has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, AES Corp is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Iberdrola SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Iberdrola SA are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Iberdrola showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with AES Corp and Iberdrola

The main advantage of trading using opposite AES Corp and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AES Corp 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 AES Corp Unit 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.