Correlation Between Endesa SA and EDP Energias

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Can any of the company-specific risk be diversified away by investing in both Endesa SA and EDP Energias 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 Endesa SA and EDP Energias into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Endesa SA ADR and EDP Energias, you can compare the effects of market volatilities on Endesa SA and EDP Energias 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 Endesa SA with a short position of EDP Energias. Check out your portfolio center. Please also check ongoing floating volatility patterns of Endesa SA and EDP Energias.

Diversification Opportunities for Endesa SA and EDP Energias

0.44
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Endesa and EDP is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Endesa SA ADR and EDP Energias in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Energias and Endesa SA 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 Endesa SA ADR are associated (or correlated) with EDP Energias. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Energias has no effect on the direction of Endesa SA i.e., Endesa SA and EDP Energias go up and down completely randomly.

Pair Corralation between Endesa SA and EDP Energias

Assuming the 90 days horizon Endesa SA ADR is expected to generate 0.6 times more return on investment than EDP Energias. However, Endesa SA ADR is 1.67 times less risky than EDP Energias. It trades about 0.03 of its potential returns per unit of risk. EDP Energias is currently generating about -0.05 per unit of risk. If you would invest  1,005  in Endesa SA ADR on September 2, 2024 and sell it today you would earn a total of  93.00  from holding Endesa SA ADR or generate 9.25% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy81.05%
ValuesDaily Returns

Endesa SA ADR  vs.  EDP Energias

 Performance 
       Timeline  
Endesa SA ADR 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA ADR are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Endesa SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
EDP Energias 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days EDP Energias has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Endesa SA and EDP Energias Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Endesa SA and EDP Energias

The main advantage of trading using opposite Endesa SA and EDP Energias positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Endesa SA position performs unexpectedly, EDP Energias 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 EDP Energias will offset losses from the drop in EDP Energias' long position.
The idea behind Endesa SA ADR and EDP Energias 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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