Correlation Between Endesa SA and Iberdrola

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

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

Diversification Opportunities for Endesa SA and Iberdrola

0.92

Correlation Coefficient

Endesa SA  Iberdrola

Almost no diversification

The 3 months correlation between Endesa and Iberdrola is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Endesa SA and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and Endesa SA 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 Endesa SA 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 Endesa SA i.e., Endesa SA and Iberdrola go up and down completely randomly.

Pair Corralation between Endesa SA and Iberdrola

Assuming the 90 days trading horizon Endesa SA is expected to generate 1.05 times more return on investment than Iberdrola. However, Endesa SA is 1.05 times more volatile than Iberdrola SA. It trades about 0.28 of its potential returns per unit of risk. Iberdrola SA is currently generating about 0.21 per unit of risk. If you would invest  2,024  in Endesa SA on December 28, 2024 and sell it today you would earn a total of  388.00  from holding Endesa SA or generate 19.17% return on investment over 90 days.

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

Endesa SA  vs.  Iberdrola SA

Endesa SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Endesa SA exhibited solid returns over the last few months and may actually be approaching a breakup point.

Iberdrola SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Iberdrola SA are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, Iberdrola exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Endesa SA and Iberdrola

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

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.