Correlation Between EDP Energias and Avista

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

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

Diversification Opportunities for EDP Energias and Avista

0.33

Correlation Coefficient

EDP Energias  Avista

Weak diversification

The 3 months correlation between EDP and Avista is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias de and Avista in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avista and EDP Energias 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 EDP Energias de are associated (or correlated) with Avista. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avista has no effect on the direction of EDP Energias i.e., EDP Energias and Avista go up and down completely randomly.

Pair Corralation between EDP Energias and Avista

Assuming the 90 days horizon EDP Energias de is expected to under-perform the Avista. In addition to that, EDP Energias is 1.31 times more volatile than Avista. It trades about -0.07 of its total potential returns per unit of risk. Avista is currently generating about 0.06 per unit of volatility. If you would invest  3,337  in Avista on September 29, 2024 and sell it today you would earn a total of  316.00  from holding Avista or generate 9.47% return on investment over 90 days.

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

EDP Energias de  vs.  Avista

EDP Energias de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Energias de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Avista

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Avista has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Avista is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with EDP Energias and Avista

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

The idea behind EDP Energias de and Avista 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.