Correlation Between Bank Central and Iberdrola

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

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

Diversification Opportunities for Bank Central and Iberdrola

-0.43

Correlation Coefficient

Bank Central  Iberdrola

Very good diversification

The 3 months correlation between Bank and Iberdrola is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Bank Central Asia and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and Bank Central 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 Bank Central Asia 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 Bank Central i.e., Bank Central and Iberdrola go up and down completely randomly.

Pair Corralation between Bank Central and Iberdrola

Assuming the 90 days horizon Bank Central Asia is expected to under-perform the Iberdrola. In addition to that, Bank Central is 1.65 times more volatile than Iberdrola SA. It trades about -0.16 of its total potential returns per unit of risk. Iberdrola SA is currently generating about 0.08 per unit of volatility. If you would invest  5,598  in Iberdrola SA on November 29, 2024 and sell it today you would earn a total of  263.00  from holding Iberdrola SA or generate 4.7% return on investment over 90 days.

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

Bank Central Asia  vs.  Iberdrola SA

Bank Central Asia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Central Asia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Iberdrola SA

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Iberdrola SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Iberdrola is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Bank Central and Iberdrola

The main advantage of trading using opposite Bank Central and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bank Central 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 Bank Central Asia 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.