Correlation Between Enel SpA and RWE AG
Can any of the company-specific risk be diversified away by investing in both Enel SpA and RWE AG 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 Enel SpA and RWE AG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Enel SpA and RWE AG, you can compare the effects of market volatilities on Enel SpA and RWE AG 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 Enel SpA with a short position of RWE AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Enel SpA and RWE AG.
Diversification Opportunities for Enel SpA and RWE AG
Modest diversification
The 3 months correlation between Enel and RWE is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Enel SpA and RWE AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RWE AG and Enel SpA 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 Enel SpA are associated (or correlated) with RWE AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RWE AG has no effect on the direction of Enel SpA i.e., Enel SpA and RWE AG go up and down completely randomly.
Pair Corralation between Enel SpA and RWE AG
Assuming the 90 days trading horizon Enel SpA is expected to under-perform the RWE AG. But the stock apears to be less risky and, when comparing its historical volatility, Enel SpA is 1.7 times less risky than RWE AG. The stock trades about -0.08 of its potential returns per unit of risk. The RWE AG is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest 2,977 in RWE AG on September 1, 2024 and sell it today you would earn a total of 210.00 from holding RWE AG or generate 7.05% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
Enel SpA vs. RWE AG
Performance |
| Timeline |
| Enel SpA |
| RWE AG |
Enel SpA and RWE AG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Enel SpA and RWE AG
The main advantage of trading using opposite Enel SpA and RWE AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enel SpA position performs unexpectedly, RWE AG 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 RWE AG will offset losses from the drop in RWE AG's long position.| Enel SpA vs. FORWARD AIR P | Enel SpA vs. JAPAN AIRLINES | Enel SpA vs. Nok Airlines PCL | Enel SpA vs. SOUTHWEST AIRLINES |
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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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