Correlation Between EDP Energias and REN Redes
Can any of the company-specific risk be diversified away by investing in both EDP Energias and REN Redes 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 EDP Energias and REN Redes into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EDP Energias and REN Redes, you can compare the effects of market volatilities on EDP Energias and REN Redes 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 EDP Energias with a short position of REN Redes. Check out your portfolio center. Please also check ongoing floating volatility patterns of EDP Energias and REN Redes.
Diversification Opportunities for EDP Energias and REN Redes
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between EDP and REN is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias and REN Redes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on REN Redes and EDP Energias 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 EDP Energias are associated (or correlated) with REN Redes. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of REN Redes has no effect on the direction of EDP Energias i.e., EDP Energias and REN Redes go up and down completely randomly.
Pair Corralation between EDP Energias and REN Redes
Assuming the 90 days trading horizon EDP Energias is expected to under-perform the REN Redes. In addition to that, EDP Energias is 2.84 times more volatile than REN Redes. It trades about -0.16 of its total potential returns per unit of risk. REN Redes is currently generating about 0.32 per unit of volatility. If you would invest 232.00 in REN Redes on August 29, 2024 and sell it today you would earn a total of 13.00 from holding REN Redes or generate 5.6% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
EDP Energias vs. REN Redes
Performance |
| Timeline |
| EDP Energias |
| REN Redes |
EDP Energias and REN Redes Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EDP Energias and REN Redes
The main advantage of trading using opposite EDP Energias and REN Redes positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EDP Energias position performs unexpectedly, REN Redes 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 REN Redes will offset losses from the drop in REN Redes' long position.| EDP Energias vs. Galp Energia SGPS | EDP Energias vs. Sonae SGPS SA | EDP Energias vs. Banco Comercial Portugues |
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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .
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