Correlation Between EDP Energias and Iberdrola
Can any of the company-specific risk be diversified away by investing in both EDP Energias 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 EDP Energias and Iberdrola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between EDP Energias de and Iberdrola SA, you can compare the effects of market volatilities on EDP Energias 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 EDP Energias with a short position of Iberdrola. Check out your portfolio center. Please also check ongoing floating volatility patterns of EDP Energias and Iberdrola.
Diversification Opportunities for EDP Energias and Iberdrola
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between EDP and Iberdrola is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias de and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA 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 de 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 EDP Energias i.e., EDP Energias and Iberdrola go up and down completely randomly.
Pair Corralation between EDP Energias and Iberdrola
Assuming the 90 days horizon EDP Energias is expected to generate 8.51 times less return on investment than Iberdrola. In addition to that, EDP Energias is 1.58 times more volatile than Iberdrola SA. It trades about 0.01 of its total potential returns per unit of risk. Iberdrola SA is currently generating about 0.2 per unit of volatility. If you would invest 1,328 in Iberdrola SA on October 21, 2024 and sell it today you would earn a total of 52.00 from holding Iberdrola SA or generate 3.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
EDP Energias de vs. Iberdrola SA
Performance |
| Timeline |
| EDP Energias de |
| Iberdrola SA |
EDP Energias and Iberdrola Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with EDP Energias and Iberdrola
The main advantage of trading using opposite EDP Energias and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if EDP Energias 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.| EDP Energias vs. RWE AG PK | EDP Energias vs. Iberdrola SA | EDP Energias vs. ENEL Societa per | EDP Energias vs. SSE PLC ADR |
| Iberdrola vs. EDP Energias de | Iberdrola vs. ENEL Societa per | Iberdrola vs. Engie SA ADR | Iberdrola vs. RWE AG PK |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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