Correlation Between Iberdrola and Engie SA

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

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

Diversification Opportunities for Iberdrola and Engie SA

0.63

Correlation Coefficient

Iberdrola  Engie SA

Poor diversification

The 3 months correlation between Iberdrola and Engie is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Iberdrola SA and Engie SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engie SA 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 Engie SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engie SA has no effect on the direction of Iberdrola i.e., Iberdrola and Engie SA go up and down completely randomly.

Pair Corralation between Iberdrola and Engie SA

Assuming the 90 days horizon Iberdrola is expected to generate 1.38 times less return on investment than Engie SA. But when comparing it to its historical volatility, Iberdrola SA is 3.63 times less risky than Engie SA. It trades about 0.23 of its potential returns per unit of risk. Engie SA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,558  in Engie SA on December 30, 2024 and sell it today you would earn a total of  333.00  from holding Engie SA or generate 21.37% 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.  Engie SA

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.

Engie SA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Engie SA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Engie SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Iberdrola and Engie SA

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

The idea behind Iberdrola SA and Engie 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.