Correlation Between Guangdong Investment and Endesa SA

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

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

Diversification Opportunities for Guangdong Investment and Endesa SA

0.23

Correlation Coefficient

Guangdong Investment  Endesa SA

Modest diversification

The 3 months correlation between Guangdong and Endesa is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Guangdong Investment and Endesa SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endesa SA ADR and Guangdong Investment 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 Guangdong Investment are associated (or correlated) with Endesa SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Endesa SA ADR has no effect on the direction of Guangdong Investment i.e., Guangdong Investment and Endesa SA go up and down completely randomly.

Pair Corralation between Guangdong Investment and Endesa SA

Assuming the 90 days horizon Guangdong Investment is expected to generate 2.27 times less return on investment than Endesa SA. In addition to that, Guangdong Investment is 2.01 times more volatile than Endesa SA ADR. It trades about 0.06 of its total potential returns per unit of risk. Endesa SA ADR is currently generating about 0.25 per unit of volatility. If you would invest  1,066  in Endesa SA ADR on December 30, 2024 and sell it today you would earn a total of  287.00  from holding Endesa SA ADR or generate 26.92% return on investment over 90 days.

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

Guangdong Investment  vs.  Endesa SA ADR

Guangdong Investment

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Guangdong Investment are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Guangdong Investment may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Endesa SA ADR

Risk-Adjusted Performance

Solid

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

Pair Trading with Guangdong Investment and Endesa SA

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

The idea behind Guangdong Investment and Endesa SA ADR 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.