Correlation Between National Grid and Iberdrola

Can any of the company-specific risk be diversified away by investing in both National Grid 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 National Grid and Iberdrola 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 Iberdrola SA, you can compare the effects of market volatilities on National Grid 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 National Grid with a short position of Iberdrola. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Grid and Iberdrola.

Diversification Opportunities for National Grid and Iberdrola

0.52

Correlation Coefficient

National Grid  Iberdrola

Very weak diversification

The 3 months correlation between National and Iberdrola is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding National Grid PLC and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA 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 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 National Grid i.e., National Grid and Iberdrola go up and down completely randomly.

Pair Corralation between National Grid and Iberdrola

Assuming the 90 days trading horizon National Grid is expected to generate 1.81 times less return on investment than Iberdrola. In addition to that, National Grid is 1.65 times more volatile than Iberdrola SA. It trades about 0.03 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  1,160  in Iberdrola SA on October 13, 2024 and sell it today you would earn a total of  206.00  from holding Iberdrola SA or generate 17.76% 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.  Iberdrola SA

National Grid PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

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 National Grid and Iberdrola

The main advantage of trading using opposite National Grid and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Grid 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 National Grid PLC 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.

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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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..