Correlation Between Iberdrola and Canadian Utilities

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

By analyzing existing cross correlation between Iberdrola SA and Canadian Utilities Limited, you can compare the effects of market volatilities on Iberdrola and Canadian Utilities 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 Canadian Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iberdrola and Canadian Utilities.

Diversification Opportunities for Iberdrola and Canadian Utilities

0.67

Correlation Coefficient

Iberdrola  Canadian Utilities

Poor diversification

The 3 months correlation between Iberdrola and Canadian is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Iberdrola SA and Canadian Utilities Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Utilities 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 Canadian Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Utilities has no effect on the direction of Iberdrola i.e., Iberdrola and Canadian Utilities go up and down completely randomly.

Pair Corralation between Iberdrola and Canadian Utilities

Assuming the 90 days horizon Iberdrola is expected to generate 2.15 times less return on investment than Canadian Utilities. In addition to that, Iberdrola is 1.21 times more volatile than Canadian Utilities Limited. It trades about 0.02 of its total potential returns per unit of risk. Canadian Utilities Limited is currently generating about 0.04 per unit of volatility. If you would invest  2,486  in Canadian Utilities Limited on September 2, 2024 and sell it today you would earn a total of  76.00  from holding Canadian Utilities Limited or generate 3.06% return on investment over 90 days.

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

Iberdrola SA  vs.  Canadian Utilities Limited

Iberdrola SA

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Iberdrola SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Iberdrola is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Canadian Utilities

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Canadian Utilities Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Canadian Utilities is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Iberdrola and Canadian Utilities

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

The idea behind Iberdrola SA and Canadian Utilities Limited 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.