Correlation Between Bank Negara and Iberdrola

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

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

Diversification Opportunities for Bank Negara and Iberdrola

0.2

Correlation Coefficient

Bank Negara  Iberdrola

Modest diversification

The 3 months correlation between Bank and Iberdrola is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Bank Negara Indonesia and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and Bank Negara 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 Negara Indonesia 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 Negara i.e., Bank Negara and Iberdrola go up and down completely randomly.

Pair Corralation between Bank Negara and Iberdrola

Assuming the 90 days horizon Bank Negara Indonesia is expected to under-perform the Iberdrola. In addition to that, Bank Negara is 7.01 times more volatile than Iberdrola SA. It trades about -0.02 of its total potential returns per unit of risk. Iberdrola SA is currently generating about 0.16 per unit of volatility. If you would invest  5,668  in Iberdrola SA on November 29, 2024 and sell it today you would earn a total of  193.00  from holding Iberdrola SA or generate 3.41% return on investment over 90 days.

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

Bank Negara Indonesia  vs.  Iberdrola SA

Bank Negara Indonesia

Risk-Adjusted Performance

Very Weak

Over the last 90 days Bank Negara Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Bank Negara is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the 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 Negara and Iberdrola

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