Correlation Between Iberdrola and EDP Energias

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

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

Diversification Opportunities for Iberdrola and EDP Energias

0.61

Correlation Coefficient

Iberdrola  EDP Energias

Poor diversification

The 3 months correlation between Iberdrola and EDP is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Iberdrola SA and EDP Energias de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Energias de 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 EDP Energias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Energias de has no effect on the direction of Iberdrola i.e., Iberdrola and EDP Energias go up and down completely randomly.

Pair Corralation between Iberdrola and EDP Energias

Assuming the 90 days horizon Iberdrola SA is expected to generate 0.67 times more return on investment than EDP Energias. However, Iberdrola SA is 1.49 times less risky than EDP Energias. It trades about 0.21 of its potential returns per unit of risk. EDP Energias de is currently generating about 0.07 per unit of risk. If you would invest  1,368  in Iberdrola SA on December 29, 2024 and sell it today you would earn a total of  236.00  from holding Iberdrola SA or generate 17.25% 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.  EDP Energias 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 16 (%) 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.

EDP Energias de

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in EDP Energias de are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal technical and fundamental indicators, EDP Energias may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Iberdrola and EDP Energias

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

The idea behind Iberdrola SA and EDP Energias 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.