Correlation Between ENCE Energa and Caixabank

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

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

Diversification Opportunities for ENCE Energa and Caixabank

0.16

Correlation Coefficient

ENCE Energa  Caixabank

Average diversification

The 3 months correlation between ENCE and Caixabank is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding ENCE Energa y and Caixabank SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Caixabank SA and ENCE Energa 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 ENCE Energa y are associated (or correlated) with Caixabank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Caixabank SA has no effect on the direction of ENCE Energa i.e., ENCE Energa and Caixabank go up and down completely randomly.

Pair Corralation between ENCE Energa and Caixabank

Assuming the 90 days trading horizon ENCE Energa is expected to generate 8.53 times less return on investment than Caixabank. But when comparing it to its historical volatility, ENCE Energa y is 1.35 times less risky than Caixabank. It trades about 0.05 of its potential returns per unit of risk. Caixabank SA is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  521.00  in Caixabank SA on December 30, 2024 and sell it today you would earn a total of  205.00  from holding Caixabank SA or generate 39.35% return on investment over 90 days.

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

ENCE Energa y  vs.  Caixabank SA

ENCE Energa y

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ENCE Energa y are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, ENCE Energa is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Caixabank SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Caixabank SA are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, Caixabank exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ENCE Energa and Caixabank

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

The idea behind ENCE Energa y and Caixabank 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.