Correlation Between Iberdrola and Telefonica

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

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

Diversification Opportunities for Iberdrola and Telefonica

0.25

Correlation Coefficient

Iberdrola  Telefonica

Modest diversification

The 3 months correlation between Iberdrola and Telefonica is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Iberdrola SA and Telefonica in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefonica 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 Telefonica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefonica has no effect on the direction of Iberdrola i.e., Iberdrola and Telefonica go up and down completely randomly.

Pair Corralation between Iberdrola and Telefonica

Assuming the 90 days trading horizon Iberdrola SA is expected to generate 0.82 times more return on investment than Telefonica. However, Iberdrola SA is 1.22 times less risky than Telefonica. It trades about 0.1 of its potential returns per unit of risk. Telefonica is currently generating about 0.05 per unit of risk. If you would invest  1,328  in Iberdrola SA on December 2, 2024 and sell it today you would earn a total of  67.00  from holding Iberdrola SA or generate 5.05% 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.  Telefonica

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.

Telefonica

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Telefonica are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Telefonica is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Iberdrola and Telefonica

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

The idea behind Iberdrola SA and Telefonica 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.