Correlation Between ENGIE ADR1 and Iberdrola

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

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

Diversification Opportunities for ENGIE ADR1 and Iberdrola

0.78

Correlation Coefficient

ENGIE ADR1  Iberdrola

Poor diversification

The 3 months correlation between ENGIE and Iberdrola is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding ENGIE ADR1 EO and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and ENGIE ADR1 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 ADR1 EO 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 ENGIE ADR1 i.e., ENGIE ADR1 and Iberdrola go up and down completely randomly.

Pair Corralation between ENGIE ADR1 and Iberdrola

Assuming the 90 days trading horizon ENGIE ADR1 EO is expected to under-perform the Iberdrola. In addition to that, ENGIE ADR1 is 1.47 times more volatile than Iberdrola SA. It trades about -0.15 of its total potential returns per unit of risk. Iberdrola SA is currently generating about -0.19 per unit of volatility. If you would invest  1,346  in Iberdrola SA on September 24, 2024 and sell it today you would lose (44.00) from holding Iberdrola SA or give up 3.27% of portfolio value over 90 days.

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

ENGIE ADR1 EO  vs.  Iberdrola SA

ENGIE ADR1 EO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ENGIE ADR1 EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, ENGIE ADR1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Iberdrola SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iberdrola SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Iberdrola is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ENGIE ADR1 and Iberdrola

The main advantage of trading using opposite ENGIE ADR1 and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ENGIE ADR1 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 ENGIE ADR1 EO 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 Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.