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

0.54

Correlation Coefficient

Iberdrola  Repsol

Very weak diversification

The 3 months correlation between Iberdrola and Repsol is 0.54. 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 SA is expected to generate 0.86 times more return on investment than Repsol. However, Iberdrola SA is 1.16 times less risky than Repsol. It trades about 0.32 of its potential returns per unit of risk. Repsol is currently generating about 0.05 per unit of risk. If you would invest  1,395  in Iberdrola SA on December 30, 2024 and sell it today you would earn a total of  107.00  from holding Iberdrola SA or generate 7.67% return on investment over 90 days.

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

Iberdrola SA  vs.  Repsol

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. In spite of rather unsteady technical and fundamental indicators, Iberdrola exhibited solid returns over the last few months and may actually be approaching a breakup point.

Repsol

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Repsol are ranked lower than 10 (%) 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.

Check out your portfolio center.

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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.