Correlation Between RWE AG and EDP Energias

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

By analyzing existing cross correlation between RWE AG PK and EDP Energias de, you can compare the effects of market volatilities on RWE AG and EDP Energias 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 RWE AG with a short position of EDP Energias. Check out your portfolio center. Please also check ongoing floating volatility patterns of RWE AG and EDP Energias.

Diversification Opportunities for RWE AG and EDP Energias

0.86

Correlation Coefficient

RWE AG  EDP Energias

Very poor diversification

The 3 months correlation between RWE and EDP is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG PK and EDP Energias de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Energias de and RWE AG 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 RWE AG PK are associated (or correlated) with EDP Energias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Energias de has no effect on the direction of RWE AG i.e., RWE AG and EDP Energias go up and down completely randomly.

Pair Corralation between RWE AG and EDP Energias

Assuming the 90 days horizon RWE AG PK is expected to under-perform the EDP Energias. But the pink sheet apears to be less risky and, when comparing its historical volatility, RWE AG PK is 1.04 times less risky than EDP Energias. The pink sheet trades about -0.08 of its potential returns per unit of risk. The EDP Energias de is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,815  in EDP Energias de on September 29, 2024 and sell it today you would lose (543.00) from holding EDP Energias de or give up 14.23% of portfolio value over 90 days.

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

RWE AG PK  vs.  EDP Energias de

RWE AG PK

Risk-Adjusted Performance

0 of 100

Very Weak

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

EDP Energias de

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Energias de has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with RWE AG and EDP Energias

The main advantage of trading using opposite RWE AG and EDP Energias positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RWE AG position performs unexpectedly, EDP Energias 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 EDP Energias will offset losses from the drop in EDP Energias' long position.

The idea behind RWE AG PK and EDP Energias de 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.