Correlation Between RWE AG and ENEL Societa

Can any of the company-specific risk be diversified away by investing in both RWE AG and ENEL Societa 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 ENEL Societa 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 ENEL Societa per, you can compare the effects of market volatilities on RWE AG and ENEL Societa 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 ENEL Societa. Check out your portfolio center. Please also check ongoing floating volatility patterns of RWE AG and ENEL Societa.

Diversification Opportunities for RWE AG and ENEL Societa

0.67

Correlation Coefficient

RWE AG  ENEL Societa

Poor diversification

The 3 months correlation between RWE and ENEL is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG PK and ENEL Societa per in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENEL Societa per 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 ENEL Societa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENEL Societa per has no effect on the direction of RWE AG i.e., RWE AG and ENEL Societa go up and down completely randomly.

Pair Corralation between RWE AG and ENEL Societa

Assuming the 90 days horizon RWE AG PK is expected to under-perform the ENEL Societa. In addition to that, RWE AG is 1.28 times more volatile than ENEL Societa per. It trades about -0.09 of its total potential returns per unit of risk. ENEL Societa per is currently generating about -0.08 per unit of volatility. If you would invest  754.00  in ENEL Societa per on August 31, 2024 and sell it today you would lose (47.00) from holding ENEL Societa per or give up 6.23% of portfolio value over 90 days.

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

RWE AG PK  vs.  ENEL Societa per

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 latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

ENEL Societa per

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with RWE AG and ENEL Societa

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

The idea behind RWE AG PK and ENEL Societa per 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.