Correlation Between National Grid and Enel SpA
Can any of the company-specific risk be diversified away by investing in both National Grid and Enel SpA 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 National Grid and Enel SpA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Grid PLC and Enel SpA, you can compare the effects of market volatilities on National Grid and Enel SpA 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 National Grid with a short position of Enel SpA. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Grid and Enel SpA.
Diversification Opportunities for National Grid and Enel SpA
0.47 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between National and Enel is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding National Grid PLC and Enel SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enel SpA and National Grid 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 National Grid PLC are associated (or correlated) with Enel SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enel SpA has no effect on the direction of National Grid i.e., National Grid and Enel SpA go up and down completely randomly.
Pair Corralation between National Grid and Enel SpA
Assuming the 90 days trading horizon National Grid is expected to generate 2.72 times less return on investment than Enel SpA. But when comparing it to its historical volatility, National Grid PLC is 1.04 times less risky than Enel SpA. It trades about 0.03 of its potential returns per unit of risk. Enel SpA is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 634.00 in Enel SpA on December 27, 2024 and sell it today you would earn a total of 61.00 from holding Enel SpA or generate 9.62% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 100.0% |
Values | Daily Returns |
National Grid PLC vs. Enel SpA
Performance |
Timeline |
National Grid PLC |
Risk-Adjusted Performance
Weak
Weak | Strong |
Enel SpA |
National Grid and Enel SpA Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with National Grid and Enel SpA
The main advantage of trading using opposite National Grid and Enel SpA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Grid position performs unexpectedly, Enel SpA 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 Enel SpA will offset losses from the drop in Enel SpA's long position.National Grid vs. Tokyu Construction Co | National Grid vs. Dairy Farm International | National Grid vs. TITAN MACHINERY | National Grid vs. Direct Line Insurance |
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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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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