Correlation Between Engie SA and ENEL Societa

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

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

Diversification Opportunities for Engie SA and ENEL Societa

0.81

Correlation Coefficient

Engie SA  ENEL Societa

Very poor diversification

The 3 months correlation between Engie and ENEL is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Engie SA ADR and ENEL Societa per in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENEL Societa per and Engie 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 Engie SA ADR are associated (or correlated) with ENEL Societa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENEL Societa per has no effect on the direction of Engie SA i.e., Engie SA and ENEL Societa go up and down completely randomly.

Pair Corralation between Engie SA and ENEL Societa

Assuming the 90 days horizon Engie SA ADR is expected to generate 0.91 times more return on investment than ENEL Societa. However, Engie SA ADR is 1.1 times less risky than ENEL Societa. It trades about 0.07 of its potential returns per unit of risk. ENEL Societa per is currently generating about 0.03 per unit of risk. If you would invest  1,535  in Engie SA ADR on October 21, 2024 and sell it today you would earn a total of  120.00  from holding Engie SA ADR or generate 7.82% return on investment over 90 days.

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

Engie SA ADR  vs.  ENEL Societa per

Engie SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Engie SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, Engie SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

ENEL Societa per

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ENEL Societa per has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, ENEL Societa is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Engie SA and ENEL Societa

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

The idea behind Engie SA ADR and ENEL Societa per 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.