Correlation Between Iberdrola and Banco Bilbao
Can any of the company-specific risk be diversified away by investing in both Iberdrola and Banco Bilbao 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 Iberdrola and Banco Bilbao into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iberdrola SA and Banco Bilbao Vizcaya, you can compare the effects of market volatilities on Iberdrola and Banco Bilbao 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 Iberdrola with a short position of Banco Bilbao. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iberdrola and Banco Bilbao.
Diversification Opportunities for Iberdrola and Banco Bilbao
0.2 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Iberdrola and Banco is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Iberdrola SA and Banco Bilbao Vizcaya in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Bilbao Vizcaya and Iberdrola 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 Iberdrola SA are associated (or correlated) with Banco Bilbao. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Bilbao Vizcaya has no effect on the direction of Iberdrola i.e., Iberdrola and Banco Bilbao go up and down completely randomly.
Pair Corralation between Iberdrola and Banco Bilbao
Assuming the 90 days trading horizon Iberdrola SA is expected to generate 0.6 times more return on investment than Banco Bilbao. However, Iberdrola SA is 1.68 times less risky than Banco Bilbao. It trades about 0.07 of its potential returns per unit of risk. Banco Bilbao Vizcaya is currently generating about 0.01 per unit of risk. If you would invest 1,277 in Iberdrola SA on August 28, 2024 and sell it today you would earn a total of 63.00 from holding Iberdrola SA or generate 4.93% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iberdrola SA vs. Banco Bilbao Vizcaya
Performance |
| Timeline |
| Iberdrola SA |
| Banco Bilbao Vizcaya |
Iberdrola and Banco Bilbao Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iberdrola and Banco Bilbao
The main advantage of trading using opposite Iberdrola and Banco Bilbao positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iberdrola position performs unexpectedly, Banco Bilbao 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 Banco Bilbao will offset losses from the drop in Banco Bilbao's long position.The idea behind Iberdrola SA and Banco Bilbao Vizcaya 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.| Banco Bilbao vs. Banco Santander | Banco Bilbao vs. Repsol | Banco Bilbao vs. Telefonica | Banco Bilbao vs. Iberdrola SA |
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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