Correlation Between Iberdrola and Repsol
Can any of the company-specific risk be diversified away by investing in both Iberdrola and Repsol 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 Repsol into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Iberdrola SA and Repsol, you can compare the effects of market volatilities on Iberdrola and Repsol 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 Repsol. Check out your portfolio center. Please also check ongoing floating volatility patterns of Iberdrola and Repsol.
Diversification Opportunities for Iberdrola and Repsol
Excellent diversification
The 3 months correlation between Iberdrola and Repsol is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding Iberdrola SA and Repsol in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Repsol 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 Repsol. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Repsol has no effect on the direction of Iberdrola i.e., Iberdrola and Repsol go up and down completely randomly.
Pair Corralation between Iberdrola and Repsol
Assuming the 90 days trading horizon Iberdrola SA is expected to under-perform the Repsol. But the stock apears to be less risky and, when comparing its historical volatility, Iberdrola SA is 1.04 times less risky than Repsol. The stock trades about -0.11 of its potential returns per unit of risk. The Repsol is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest 1,187 in Repsol on August 24, 2024 and sell it today you would lose (1.00) from holding Repsol or give up 0.08% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Iberdrola SA vs. Repsol
Performance |
| Timeline |
| Iberdrola SA |
| Repsol |
Iberdrola and Repsol Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Iberdrola and Repsol
The main advantage of trading using opposite Iberdrola and Repsol positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iberdrola position performs unexpectedly, Repsol 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 Repsol will offset losses from the drop in Repsol's long position.The idea behind Iberdrola SA and Repsol 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 Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.
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