Correlation Between Banco De and ENCE Energa

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

By analyzing existing cross correlation between Banco de Sabadell and ENCE Energa y, you can compare the effects of market volatilities on Banco De and ENCE Energa 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 Banco De with a short position of ENCE Energa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Banco De and ENCE Energa.

Diversification Opportunities for Banco De and ENCE Energa

0.49

Correlation Coefficient

Banco De  ENCE Energa

Very weak diversification

The 3 months correlation between Banco and ENCE is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Banco de Sabadell and ENCE Energa y in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENCE Energa y and Banco De 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 Banco de Sabadell are associated (or correlated) with ENCE Energa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENCE Energa y has no effect on the direction of Banco De i.e., Banco De and ENCE Energa go up and down completely randomly.

Pair Corralation between Banco De and ENCE Energa

Assuming the 90 days trading horizon Banco de Sabadell is expected to generate 1.37 times more return on investment than ENCE Energa. However, Banco De is 1.37 times more volatile than ENCE Energa y. It trades about 0.39 of its potential returns per unit of risk. ENCE Energa y is currently generating about 0.09 per unit of risk. If you would invest  187.00  in Banco de Sabadell on December 26, 2024 and sell it today you would earn a total of  94.00  from holding Banco de Sabadell or generate 50.27% return on investment over 90 days.

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

Banco de Sabadell  vs.  ENCE Energa y

Banco de Sabadell

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Banco de Sabadell are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental drivers, Banco De exhibited solid returns over the last few months and may actually be approaching a breakup point.

ENCE Energa y

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ENCE Energa y are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady fundamental indicators, ENCE Energa may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Banco De and ENCE Energa

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

The idea behind Banco de Sabadell and ENCE Energa y 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..