Correlation Between EnBW Energie and EON SE

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

By analyzing existing cross correlation between EnBW Energie Baden Wrttemberg and EON SE, you can compare the effects of market volatilities on EnBW Energie and EON SE 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 EnBW Energie with a short position of EON SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of EnBW Energie and EON SE.

Diversification Opportunities for EnBW Energie and EON SE

0.86

Correlation Coefficient

EnBW Energie  EON SE

Very poor diversification

The 3 months correlation between EnBW and EON is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding EnBW Energie Baden Wrttemberg and EON SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EON SE and EnBW Energie 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 EnBW Energie Baden Wrttemberg are associated (or correlated) with EON SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EON SE has no effect on the direction of EnBW Energie i.e., EnBW Energie and EON SE go up and down completely randomly.

Pair Corralation between EnBW Energie and EON SE

Assuming the 90 days trading horizon EnBW Energie is expected to generate 1.21 times less return on investment than EON SE. In addition to that, EnBW Energie is 1.5 times more volatile than EON SE. It trades about 0.14 of its total potential returns per unit of risk. EON SE is currently generating about 0.26 per unit of volatility. If you would invest  1,125  in EON SE on December 30, 2024 and sell it today you would earn a total of  261.00  from holding EON SE or generate 23.2% return on investment over 90 days.

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

EnBW Energie Baden Wrttemberg  vs.  EON SE

EnBW Energie Baden

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EnBW Energie Baden Wrttemberg are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile forward-looking signals, EnBW Energie unveiled solid returns over the last few months and may actually be approaching a breakup point.

EON SE

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EON SE are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, EON SE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EnBW Energie and EON SE

The main advantage of trading using opposite EnBW Energie and EON SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EnBW Energie position performs unexpectedly, EON SE 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 EON SE will offset losses from the drop in EON SE's long position.

The idea behind EnBW Energie Baden Wrttemberg and EON SE 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.