Correlation Between SSE PLC and ENEL Societa

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

By analyzing existing cross correlation between SSE PLC ADR and ENEL Societa per, you can compare the effects of market volatilities on SSE PLC 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 SSE PLC with a short position of ENEL Societa. Check out your portfolio center. Please also check ongoing floating volatility patterns of SSE PLC and ENEL Societa.

Diversification Opportunities for SSE PLC and ENEL Societa

0.24

Correlation Coefficient

SSE PLC  ENEL Societa

Modest diversification

The 3 months correlation between SSE and ENEL is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding SSE PLC ADR 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 SSE PLC 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 SSE PLC ADR 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 SSE PLC i.e., SSE PLC and ENEL Societa go up and down completely randomly.

Pair Corralation between SSE PLC and ENEL Societa

Assuming the 90 days horizon SSE PLC ADR is expected to generate 0.99 times more return on investment than ENEL Societa. However, SSE PLC ADR is 1.01 times less risky than ENEL Societa. It trades about 0.05 of its potential returns per unit of risk. ENEL Societa per is currently generating about 0.01 per unit of risk. If you would invest  1,982  in SSE PLC ADR on October 24, 2024 and sell it today you would earn a total of  24.00  from holding SSE PLC ADR or generate 1.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	94.74%
Values	Daily Returns

SSE PLC ADR  vs.  ENEL Societa per

SSE PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SSE PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing 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 latest fragile 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.

Pair Trading with SSE PLC and ENEL Societa

The main advantage of trading using opposite SSE PLC and ENEL Societa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SSE PLC 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 SSE PLC ADR 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.