Correlation Between Lyxor 1 and IBERDROLA ADR/1

Can any of the company-specific risk be diversified away by investing in both Lyxor 1 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 Lyxor 1 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 Lyxor 1 and IBERDROLA ADR1 EO, you can compare the effects of market volatilities on Lyxor 1 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 Lyxor 1 with a short position of IBERDROLA ADR/1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lyxor 1 and IBERDROLA ADR/1.

Diversification Opportunities for Lyxor 1 and IBERDROLA ADR/1

-0.3

Correlation Coefficient

Lyxor 1  IBERDROLA ADR/1

Very good diversification

The 3 months correlation between Lyxor and IBERDROLA is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Lyxor 1 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 Lyxor 1 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 Lyxor 1 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 Lyxor 1 i.e., Lyxor 1 and IBERDROLA ADR/1 go up and down completely randomly.

Pair Corralation between Lyxor 1 and IBERDROLA ADR/1

Assuming the 90 days trading horizon Lyxor 1 is expected to generate 10.54 times less return on investment than IBERDROLA ADR/1. But when comparing it to its historical volatility, Lyxor 1 is 1.65 times less risky than IBERDROLA ADR/1. It trades about 0.01 of its potential returns per unit of risk. IBERDROLA ADR1 EO is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  4,840  in IBERDROLA ADR1 EO on October 4, 2024 and sell it today you would earn a total of  360.00  from holding IBERDROLA ADR1 EO or generate 7.44% return on investment over 90 days.

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

Lyxor 1   vs.  IBERDROLA ADR1 EO

Lyxor 1

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor 1 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Lyxor 1 is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

IBERDROLA ADR1 EO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IBERDROLA ADR1 EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, IBERDROLA ADR/1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Lyxor 1 and IBERDROLA ADR/1

The main advantage of trading using opposite Lyxor 1 and IBERDROLA ADR/1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lyxor 1 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 Lyxor 1 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.