Correlation Between Iberdrola and ENEL Societa

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

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

Diversification Opportunities for Iberdrola and ENEL Societa

0.54

Correlation Coefficient

Iberdrola  ENEL Societa

Very weak diversification

The 3 months correlation between Iberdrola and ENEL is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Iberdrola SA 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 Iberdrola 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 Iberdrola SA 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 Iberdrola i.e., Iberdrola and ENEL Societa go up and down completely randomly.

Pair Corralation between Iberdrola and ENEL Societa

Assuming the 90 days horizon Iberdrola SA is expected to generate 1.05 times more return on investment than ENEL Societa. However, Iberdrola is 1.05 times more volatile than ENEL Societa per. It trades about 0.25 of its potential returns per unit of risk. ENEL Societa per is currently generating about 0.22 per unit of risk. 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

Iberdrola SA  vs.  ENEL Societa per

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.

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.

Pair Trading with Iberdrola and ENEL Societa

The main advantage of trading using opposite Iberdrola and ENEL Societa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iberdrola 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 Iberdrola SA 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.

Check out your portfolio center.

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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.