Correlation Between PacifiCorp and Iberdrola

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

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

Diversification Opportunities for PacifiCorp and Iberdrola

-0.55

Correlation Coefficient

PacifiCorp  Iberdrola

Excellent diversification

The 3 months correlation between PacifiCorp and Iberdrola is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding PacifiCorp and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and PacifiCorp 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 PacifiCorp 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 PacifiCorp i.e., PacifiCorp and Iberdrola go up and down completely randomly.

Pair Corralation between PacifiCorp and Iberdrola

Assuming the 90 days horizon PacifiCorp is expected to generate 161.7 times more return on investment than Iberdrola. However, PacifiCorp is 161.7 times more volatile than Iberdrola SA. It trades about 0.15 of its potential returns per unit of risk. Iberdrola SA is currently generating about 0.23 per unit of risk. If you would invest  100,000,000  in PacifiCorp on December 23, 2024 and sell it today you would lose (99,980,675) from holding PacifiCorp or give up 99.98% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	42.62%
Values	Daily Returns

PacifiCorp  vs.  Iberdrola SA

PacifiCorp

Risk-Adjusted Performance

Good

Over the last 90 days PacifiCorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very inconsistent essential indicators, PacifiCorp displayed solid returns over the last few months and may actually be approaching a breakup point.

Iberdrola SA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Iberdrola SA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Iberdrola reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PacifiCorp and Iberdrola

The main advantage of trading using opposite PacifiCorp and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PacifiCorp 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 PacifiCorp 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.