Correlation Between Beijing Enterprises and Endesa SA

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

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

Diversification Opportunities for Beijing Enterprises and Endesa SA

-0.39

Correlation Coefficient

Beijing Enterprises  Endesa SA

Very good diversification

The 3 months correlation between Beijing and Endesa is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Beijing Enterprises Water and Endesa SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endesa SA ADR and Beijing Enterprises 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 Beijing Enterprises Water 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 ADR has no effect on the direction of Beijing Enterprises i.e., Beijing Enterprises and Endesa SA go up and down completely randomly.

Pair Corralation between Beijing Enterprises and Endesa SA

Assuming the 90 days horizon Beijing Enterprises Water is expected to under-perform the Endesa SA. In addition to that, Beijing Enterprises is 1.43 times more volatile than Endesa SA ADR. It trades about -0.09 of its total potential returns per unit of risk. Endesa SA ADR is currently generating about 0.25 per unit of volatility. If you would invest  1,066  in Endesa SA ADR on December 30, 2024 and sell it today you would earn a total of  287.00  from holding Endesa SA ADR or generate 26.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Beijing Enterprises Water  vs.  Endesa SA ADR

Beijing Enterprises Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days Beijing Enterprises Water has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Endesa SA ADR

Risk-Adjusted Performance

Solid

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

Pair Trading with Beijing Enterprises and Endesa SA

The main advantage of trading using opposite Beijing Enterprises and Endesa SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Beijing Enterprises 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 Beijing Enterprises Water and Endesa SA ADR 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.