Correlation Between EVN AG and IBERDROLA ADR1

Can any of the company-specific risk be diversified away by investing in both EVN AG and IBERDROLA ADR1 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 EVN AG and IBERDROLA ADR1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between EVN AG and IBERDROLA ADR1 EO, you can compare the effects of market volatilities on EVN AG and IBERDROLA ADR1 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 EVN AG with a short position of IBERDROLA ADR1. Check out your portfolio center. Please also check ongoing floating volatility patterns of EVN AG and IBERDROLA ADR1.

Diversification Opportunities for EVN AG and IBERDROLA ADR1

0.65

Correlation Coefficient

EVN AG  IBERDROLA ADR1

Poor diversification

The 3 months correlation between EVN and IBERDROLA is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding EVN AG and IBERDROLA ADR1 EO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IBERDROLA ADR1 EO and EVN AG 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 EVN AG are associated (or correlated) with IBERDROLA ADR1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IBERDROLA ADR1 EO has no effect on the direction of EVN AG i.e., EVN AG and IBERDROLA ADR1 go up and down completely randomly.

Pair Corralation between EVN AG and IBERDROLA ADR1

Assuming the 90 days horizon EVN AG is expected to generate 1.22 times less return on investment than IBERDROLA ADR1. But when comparing it to its historical volatility, EVN AG is 1.11 times less risky than IBERDROLA ADR1. It trades about 0.04 of its potential returns per unit of risk. IBERDROLA ADR1 EO is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  3,867  in IBERDROLA ADR1 EO on September 22, 2024 and sell it today you would earn a total of  1,283  from holding IBERDROLA ADR1 EO or generate 33.18% return on investment over 90 days.

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

EVN AG  vs.  IBERDROLA ADR1 EO

EVN AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EVN AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

IBERDROLA ADR1 EO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IBERDROLA ADR1 EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with EVN AG and IBERDROLA ADR1

The main advantage of trading using opposite EVN AG and IBERDROLA ADR1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EVN AG position performs unexpectedly, IBERDROLA ADR1 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 ADR1 will offset losses from the drop in IBERDROLA ADR1's long position.

The idea behind EVN AG and IBERDROLA ADR1 EO 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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.