Correlation Between Iberdrola and Companhia Energetica

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

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

Diversification Opportunities for Iberdrola and Companhia Energetica

0.2

Correlation Coefficient

Iberdrola  Companhia Energetica

Modest diversification

The 3 months correlation between Iberdrola and Companhia is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Iberdrola SA and Companhia Energetica de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Energetica 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 Companhia Energetica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Energetica has no effect on the direction of Iberdrola i.e., Iberdrola and Companhia Energetica go up and down completely randomly.

Pair Corralation between Iberdrola and Companhia Energetica

Assuming the 90 days horizon Iberdrola SA is expected to generate 0.63 times more return on investment than Companhia Energetica. However, Iberdrola SA is 1.59 times less risky than Companhia Energetica. It trades about 0.24 of its potential returns per unit of risk. Companhia Energetica de is currently generating about 0.03 per unit of risk. If you would invest  1,369  in Iberdrola SA on December 31, 2024 and sell it today you would earn a total of  269.00  from holding Iberdrola SA or generate 19.65% return on investment over 90 days.

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

Iberdrola SA  vs.  Companhia Energetica de

Iberdrola SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Iberdrola SA are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Iberdrola reported solid returns over the last few months and may actually be approaching a breakup point.

Companhia Energetica

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia Energetica de are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward indicators, Companhia Energetica 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 Companhia Energetica

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

The idea behind Iberdrola SA and Companhia Energetica de 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.