Correlation Between Black Hills and Iberdrola

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

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

Diversification Opportunities for Black Hills and Iberdrola

-0.48

Correlation Coefficient

Black Hills  Iberdrola

Very good diversification

The 3 months correlation between Black and Iberdrola is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Black Hills and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and Black Hills 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 Black Hills 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 Black Hills i.e., Black Hills and Iberdrola go up and down completely randomly.

Pair Corralation between Black Hills and Iberdrola

Considering the 90-day investment horizon Black Hills is expected to generate 0.98 times more return on investment than Iberdrola. However, Black Hills is 1.02 times less risky than Iberdrola. It trades about 0.07 of its potential returns per unit of risk. Iberdrola SA is currently generating about 0.06 per unit of risk. If you would invest  5,151  in Black Hills on September 4, 2024 and sell it today you would earn a total of  1,149  from holding Black Hills or generate 22.31% return on investment over 90 days.

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

Black Hills  vs.  Iberdrola SA

Black Hills

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Black Hills are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady forward-looking signals, Black Hills may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Iberdrola SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Black Hills and Iberdrola

The main advantage of trading using opposite Black Hills and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Black Hills 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 Black Hills 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.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.