Correlation Between Avista and EDP Energias

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

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

Diversification Opportunities for Avista and EDP Energias

0.33

Correlation Coefficient

Avista  EDP Energias

Weak diversification

The 3 months correlation between Avista and EDP is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Avista and EDP Energias de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Energias de and Avista 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 Avista are associated (or correlated) with EDP Energias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Energias de has no effect on the direction of Avista i.e., Avista and EDP Energias go up and down completely randomly.

Pair Corralation between Avista and EDP Energias

Considering the 90-day investment horizon Avista is expected to generate 0.85 times more return on investment than EDP Energias. However, Avista is 1.18 times less risky than EDP Energias. It trades about 0.0 of its potential returns per unit of risk. EDP Energias de is currently generating about -0.03 per unit of risk. If you would invest  3,758  in Avista on September 27, 2024 and sell it today you would lose (92.00) from holding Avista or give up 2.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Avista  vs.  EDP Energias de

Avista

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avista has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Avista is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

EDP Energias de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Energias de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Avista and EDP Energias

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

The idea behind Avista and EDP Energias de 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.