Correlation Between Japan Steel and Iberdrola

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

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

Diversification Opportunities for Japan Steel and Iberdrola

-0.45

Correlation Coefficient

Japan Steel  Iberdrola

Very good diversification

The 3 months correlation between Japan and Iberdrola is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding The Japan Steel and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and Japan Steel 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 The Japan Steel are associated (or correlated) with Iberdrola. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Iberdrola SA has no effect on the direction of Japan Steel i.e., Japan Steel and Iberdrola go up and down completely randomly.

Pair Corralation between Japan Steel and Iberdrola

Assuming the 90 days horizon Japan Steel is expected to generate 1.48 times less return on investment than Iberdrola. In addition to that, Japan Steel is 1.74 times more volatile than Iberdrola SA. It trades about 0.04 of its total potential returns per unit of risk. Iberdrola SA is currently generating about 0.1 per unit of volatility. If you would invest  1,287  in Iberdrola SA on October 26, 2024 and sell it today you would earn a total of  27.00  from holding Iberdrola SA or generate 2.1% return on investment over 90 days.

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

The Japan Steel  vs.  Iberdrola SA

Japan Steel

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in The Japan Steel are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Japan Steel reported solid returns over the last few months and may actually be approaching a breakup point.

Iberdrola SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iberdrola SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Iberdrola is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Japan Steel and Iberdrola

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

The idea behind The Japan Steel and Iberdrola 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.

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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.