Correlation Between Iberdrola and Repsol

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

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

Diversification Opportunities for Iberdrola and Repsol

0.67

Correlation Coefficient

Iberdrola  Repsol

Poor diversification

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

Pair Corralation between Iberdrola and Repsol

Assuming the 90 days trading horizon Iberdrola is expected to generate 1.95 times less return on investment than Repsol. But when comparing it to its historical volatility, Iberdrola SA is 1.77 times less risky than Repsol. It trades about 0.1 of its potential returns per unit of risk. Repsol is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  1,121  in Repsol on December 2, 2024 and sell it today you would earn a total of  110.00  from holding Repsol or generate 9.81% 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.  Repsol

Iberdrola SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Iberdrola SA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Iberdrola is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Repsol

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Repsol are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, Repsol may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Iberdrola and Repsol

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

The idea behind Iberdrola SA and Repsol 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.