Correlation Between Edison International and Endesa SA

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

By analyzing existing cross correlation between Edison International and Endesa SA ADR, you can compare the effects of market volatilities on Edison International and Endesa SA 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 Edison International with a short position of Endesa SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Edison International and Endesa SA.

Diversification Opportunities for Edison International and Endesa SA

-0.42

Correlation Coefficient

Edison International  Endesa SA

Very good diversification

The 3 months correlation between Edison and Endesa is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Edison International and Endesa SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endesa SA ADR and Edison International 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 Edison International are associated (or correlated) with Endesa SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Endesa SA ADR has no effect on the direction of Edison International i.e., Edison International and Endesa SA go up and down completely randomly.

Pair Corralation between Edison International and Endesa SA

Considering the 90-day investment horizon Edison International is expected to under-perform the Endesa SA. In addition to that, Edison International is 1.91 times more volatile than Endesa SA ADR. It trades about -0.15 of its total potential returns per unit of risk. Endesa SA ADR is currently generating about 0.23 per unit of volatility. If you would invest  1,066  in Endesa SA ADR on December 28, 2024 and sell it today you would earn a total of  244.00  from holding Endesa SA ADR or generate 22.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Edison International  vs.  Endesa SA ADR

Edison International

Risk-Adjusted Performance

Very Weak

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

Endesa SA ADR

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA ADR are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Endesa SA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Edison International and Endesa SA

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

The idea behind Edison International and Endesa SA ADR 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.