Correlation Between EDP Energias and Iberdrola

Can any of the company-specific risk be diversified away by investing in both EDP Energias 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 EDP Energias and Iberdrola 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 Iberdrola SA, you can compare the effects of market volatilities on EDP Energias 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 EDP Energias with a short position of Iberdrola. Check out your portfolio center. Please also check ongoing floating volatility patterns of EDP Energias and Iberdrola.

Diversification Opportunities for EDP Energias and Iberdrola

-0.04

Correlation Coefficient

EDP Energias  Iberdrola

Good diversification

The 3 months correlation between EDP and Iberdrola is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias de and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA 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 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 EDP Energias i.e., EDP Energias and Iberdrola go up and down completely randomly.

Pair Corralation between EDP Energias and Iberdrola

Assuming the 90 days horizon EDP Energias de is expected to under-perform the Iberdrola. In addition to that, EDP Energias is 1.35 times more volatile than Iberdrola SA. It trades about -0.07 of its total potential returns per unit of risk. Iberdrola SA is currently generating about 0.05 per unit of volatility. If you would invest  1,415  in Iberdrola SA on November 29, 2024 and sell it today you would earn a total of  41.00  from holding Iberdrola SA or generate 2.9% return on investment over 90 days.

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

EDP Energias de  vs.  Iberdrola SA

EDP Energias de

Risk-Adjusted Performance

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 latest weak performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Iberdrola SA

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Iberdrola SA are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. 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 EDP Energias and Iberdrola

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

Check out your portfolio center.

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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.