Correlation Between Energy Of and Iberdrola

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

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

Diversification Opportunities for Energy Of and Iberdrola

0.1

Correlation Coefficient

Energy Of  Iberdrola

Average diversification

The 3 months correlation between Energy and Iberdrola is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Energy of Minas and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and Energy Of 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 Energy of Minas 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 Energy Of i.e., Energy Of and Iberdrola go up and down completely randomly.

Pair Corralation between Energy Of and Iberdrola

Assuming the 90 days horizon Energy Of is expected to generate 1.03 times less return on investment than Iberdrola. In addition to that, Energy Of is 1.83 times more volatile than Iberdrola SA. It trades about 0.03 of its total potential returns per unit of risk. Iberdrola SA is currently generating about 0.06 per unit of volatility. If you would invest  1,213  in Iberdrola SA on September 4, 2024 and sell it today you would earn a total of  214.00  from holding Iberdrola SA or generate 17.64% return on investment over 90 days.

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

Energy of Minas  vs.  Iberdrola SA

Energy of Minas

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Energy of Minas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

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 Energy Of and Iberdrola

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

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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 Transaction History module to view history of all your transactions and understand their impact on performance.