Correlation Between EDP Renováveis and VIVA WINE

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

By analyzing existing cross correlation between EDP Renovveis SA and VIVA WINE GROUP, you can compare the effects of market volatilities on EDP Renováveis and VIVA WINE 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 Renováveis with a short position of VIVA WINE. Check out your portfolio center. Please also check ongoing floating volatility patterns of EDP Renováveis and VIVA WINE.

Diversification Opportunities for EDP Renováveis and VIVA WINE

0.93

Correlation Coefficient

EDP Renováveis  VIVA WINE

Almost no diversification

The 3 months correlation between EDP and VIVA is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding EDP Renovveis SA and VIVA WINE GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VIVA WINE GROUP and EDP Renováveis 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 Renovveis SA are associated (or correlated) with VIVA WINE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VIVA WINE GROUP has no effect on the direction of EDP Renováveis i.e., EDP Renováveis and VIVA WINE go up and down completely randomly.

Pair Corralation between EDP Renováveis and VIVA WINE

Assuming the 90 days horizon EDP Renovveis SA is expected to under-perform the VIVA WINE. But the stock apears to be less risky and, when comparing its historical volatility, EDP Renovveis SA is 2.34 times less risky than VIVA WINE. The stock trades about -0.08 of its potential returns per unit of risk. The VIVA WINE GROUP is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  192.00  in VIVA WINE GROUP on October 9, 2024 and sell it today you would earn a total of  143.00  from holding VIVA WINE GROUP or generate 74.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	99.6%
Values	Daily Returns

EDP Renovveis SA  vs.  VIVA WINE GROUP

EDP Renovveis SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Renovveis SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

VIVA WINE GROUP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VIVA WINE GROUP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with EDP Renováveis and VIVA WINE

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

The idea behind EDP Renovveis SA and VIVA WINE GROUP 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.