Correlation Between ENEL Societa and Iberdrola

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

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

Diversification Opportunities for ENEL Societa and Iberdrola

0.54

Correlation Coefficient

ENEL Societa  Iberdrola

Very weak diversification

The 3 months correlation between ENEL and Iberdrola is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding ENEL Societa per and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and ENEL Societa 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 ENEL Societa per 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 ENEL Societa i.e., ENEL Societa and Iberdrola go up and down completely randomly.

Pair Corralation between ENEL Societa and Iberdrola

Assuming the 90 days horizon ENEL Societa is expected to generate 1.17 times less return on investment than Iberdrola. But when comparing it to its historical volatility, ENEL Societa per is 1.05 times less risky than Iberdrola. It trades about 0.22 of its potential returns per unit of risk. Iberdrola SA is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  5,390  in Iberdrola SA on December 30, 2024 and sell it today you would earn a total of  1,107  from holding Iberdrola SA or generate 20.54% return on investment over 90 days.

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

ENEL Societa per  vs.  Iberdrola SA

ENEL Societa per

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ENEL Societa per are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, ENEL Societa showed 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 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Iberdrola showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with ENEL Societa and Iberdrola

The main advantage of trading using opposite ENEL Societa and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ENEL Societa 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 ENEL Societa per 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 Managers module to screen money managers from public funds and ETFs managed around the world.