Correlation Between Arima Real and Endesa SA

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

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

Diversification Opportunities for Arima Real and Endesa SA

-0.49

Correlation Coefficient

Arima Real  Endesa SA

Very good diversification

The 3 months correlation between Arima and Endesa is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding Arima Real Estate and Endesa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endesa SA and Arima Real 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 Arima Real Estate are associated (or correlated) with Endesa SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Endesa SA has no effect on the direction of Arima Real i.e., Arima Real and Endesa SA go up and down completely randomly.

Pair Corralation between Arima Real and Endesa SA

Assuming the 90 days trading horizon Arima Real Estate is expected to under-perform the Endesa SA. In addition to that, Arima Real is 1.38 times more volatile than Endesa SA. It trades about -0.05 of its total potential returns per unit of risk. Endesa SA is currently generating about 0.31 per unit of volatility. If you would invest  2,024  in Endesa SA on December 29, 2024 and sell it today you would earn a total of  440.00  from holding Endesa SA or generate 21.74% return on investment over 90 days.

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

Arima Real Estate  vs.  Endesa SA

Arima Real Estate

Risk-Adjusted Performance

Very Weak

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

Endesa SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Endesa SA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Arima Real and Endesa SA

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

The idea behind Arima Real Estate and Endesa 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.

Check out your portfolio center.

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.