Correlation Between RWE AG and Iberdrola

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

Diversification Opportunities for RWE AG and Iberdrola

0.95

Correlation Coefficient

RWE AG  Iberdrola

Almost no diversification

The 3 months correlation between RWE and Iberdrola is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG PK and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA 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 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 RWE AG i.e., RWE AG and Iberdrola go up and down completely randomly.

Pair Corralation between RWE AG and Iberdrola

Assuming the 90 days horizon RWE AG PK is expected to generate 1.34 times more return on investment than Iberdrola. However, RWE AG is 1.34 times more volatile than Iberdrola SA. It trades about 0.2 of its potential returns per unit of risk. Iberdrola SA is currently generating about 0.25 per unit of risk. If you would invest  2,958  in RWE AG PK on December 29, 2024 and sell it today you would earn a total of  635.00  from holding RWE AG PK or generate 21.47% return on investment over 90 days.

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

RWE AG PK  vs.  Iberdrola SA

RWE AG PK

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in RWE AG PK are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, RWE AG showed 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 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Iberdrola showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with RWE AG and Iberdrola

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

Check out your portfolio center.

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.