Correlation Between IBEX 35 and ENCE Energa

Can any of the company-specific risk be diversified away by investing in both IBEX 35 and ENCE Energa 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 IBEX 35 and ENCE Energa into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IBEX 35 Index and ENCE Energa y, you can compare the effects of market volatilities on IBEX 35 and ENCE Energa 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 IBEX 35 with a short position of ENCE Energa. Check out your portfolio center. Please also check ongoing floating volatility patterns of IBEX 35 and ENCE Energa.

Diversification Opportunities for IBEX 35 and ENCE Energa

0.09

Correlation Coefficient

IBEX 35  ENCE Energa

Significant diversification

The 3 months correlation between IBEX and ENCE is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding IBEX 35 Index and ENCE Energa y in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENCE Energa y and IBEX 35 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 IBEX 35 Index are associated (or correlated) with ENCE Energa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENCE Energa y has no effect on the direction of IBEX 35 i.e., IBEX 35 and ENCE Energa go up and down completely randomly.

Pair Corralation between IBEX 35 and ENCE Energa

Assuming the 90 days trading horizon IBEX 35 Index is expected to generate 0.6 times more return on investment than ENCE Energa. However, IBEX 35 Index is 1.68 times less risky than ENCE Energa. It trades about -0.08 of its potential returns per unit of risk. ENCE Energa y is currently generating about -0.13 per unit of risk. If you would invest  1,184,300  in IBEX 35 Index on September 2, 2024 and sell it today you would lose (20,170) from holding IBEX 35 Index or give up 1.7% of portfolio value over 90 days.

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

IBEX 35 Index  vs.  ENCE Energa y

Pair Trading with IBEX 35 and ENCE Energa

The main advantage of trading using opposite IBEX 35 and ENCE Energa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IBEX 35 position performs unexpectedly, ENCE Energa 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 ENCE Energa will offset losses from the drop in ENCE Energa's long position.

The idea behind IBEX 35 Index and ENCE Energa y 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.