Correlation Between Endesa SA and Insteel Industries

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

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

Diversification Opportunities for Endesa SA and Insteel Industries

0.0

Correlation Coefficient

Endesa SA  Insteel Industries

Pay attention - limited upside

The 3 months correlation between Endesa and Insteel is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Endesa SA and Insteel Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Insteel Industries 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 Insteel Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Insteel Industries has no effect on the direction of Endesa SA i.e., Endesa SA and Insteel Industries go up and down completely randomly.

Pair Corralation between Endesa SA and Insteel Industries

Assuming the 90 days trading horizon Endesa SA is expected to generate 0.47 times more return on investment than Insteel Industries. However, Endesa SA is 2.11 times less risky than Insteel Industries. It trades about 0.27 of its potential returns per unit of risk. Insteel Industries is currently generating about 0.0 per unit of risk. If you would invest  2,015  in Endesa SA on December 29, 2024 and sell it today you would earn a total of  438.00  from holding Endesa SA or generate 21.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Endesa SA  vs.  Insteel Industries

Endesa SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, Endesa SA unveiled solid returns over the last few months and may actually be approaching a breakup point.

Insteel Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Insteel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Insteel Industries is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Endesa SA and Insteel Industries

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

The idea behind Endesa SA and Insteel Industries 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.