Correlation Between BBVA Banco and IBERDROLA ADR/1

Can any of the company-specific risk be diversified away by investing in both BBVA Banco and IBERDROLA ADR/1 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 BBVA Banco and IBERDROLA ADR/1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BBVA Banco Frances and IBERDROLA ADR1 EO, you can compare the effects of market volatilities on BBVA Banco and IBERDROLA ADR/1 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 BBVA Banco with a short position of IBERDROLA ADR/1. Check out your portfolio center. Please also check ongoing floating volatility patterns of BBVA Banco and IBERDROLA ADR/1.

Diversification Opportunities for BBVA Banco and IBERDROLA ADR/1

-0.29

Correlation Coefficient

BBVA Banco  IBERDROLA ADR/1

Very good diversification

The 3 months correlation between BBVA and IBERDROLA is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding BBVA Banco Frances and IBERDROLA ADR1 EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IBERDROLA ADR1 EO and BBVA Banco 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 BBVA Banco Frances are associated (or correlated) with IBERDROLA ADR/1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IBERDROLA ADR1 EO has no effect on the direction of BBVA Banco i.e., BBVA Banco and IBERDROLA ADR/1 go up and down completely randomly.

Pair Corralation between BBVA Banco and IBERDROLA ADR/1

Assuming the 90 days horizon BBVA Banco is expected to generate 11.97 times less return on investment than IBERDROLA ADR/1. In addition to that, BBVA Banco is 3.67 times more volatile than IBERDROLA ADR1 EO. It trades about 0.0 of its total potential returns per unit of risk. IBERDROLA ADR1 EO is currently generating about 0.18 per unit of volatility. If you would invest  5,114  in IBERDROLA ADR1 EO on December 27, 2024 and sell it today you would earn a total of  736.00  from holding IBERDROLA ADR1 EO or generate 14.39% return on investment over 90 days.

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

BBVA Banco Frances  vs.  IBERDROLA ADR1 EO

BBVA Banco Frances

Risk-Adjusted Performance

Very Weak

Over the last 90 days BBVA Banco Frances has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BBVA Banco is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

IBERDROLA ADR1 EO

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in IBERDROLA ADR1 EO are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, IBERDROLA ADR/1 reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BBVA Banco and IBERDROLA ADR/1

The main advantage of trading using opposite BBVA Banco and IBERDROLA ADR/1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BBVA Banco position performs unexpectedly, IBERDROLA ADR/1 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 ADR/1 will offset losses from the drop in IBERDROLA ADR/1's long position.

The idea behind BBVA Banco Frances and IBERDROLA ADR1 EO 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.