Correlation Between Construcciones and Endesa SA

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

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

Diversification Opportunities for Construcciones and Endesa SA

-0.45

Correlation Coefficient

Construcciones  Endesa SA

Very good diversification

The 3 months correlation between Construcciones and Endesa is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Construcciones y Auxiliar and Endesa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endesa SA and Construcciones 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 Construcciones y Auxiliar 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 Construcciones i.e., Construcciones and Endesa SA go up and down completely randomly.

Pair Corralation between Construcciones and Endesa SA

Assuming the 90 days trading horizon Construcciones y Auxiliar is expected to under-perform the Endesa SA. In addition to that, Construcciones is 1.31 times more volatile than Endesa SA. It trades about -0.06 of its total potential returns per unit of risk. Endesa SA is currently generating about 0.14 per unit of volatility. If you would invest  1,942  in Endesa SA on October 26, 2024 and sell it today you would earn a total of  170.00  from holding Endesa SA or generate 8.75% return on investment over 90 days.

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

Construcciones y Auxiliar  vs.  Endesa SA

Construcciones y Auxiliar

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Construcciones y Auxiliar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Construcciones is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Endesa SA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Endesa SA may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Construcciones and Endesa SA

The main advantage of trading using opposite Construcciones and Endesa SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Construcciones 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 Construcciones y Auxiliar 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.

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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.