Correlation Between National Grid and Iberdrola
Can any of the company-specific risk be diversified away by investing in both National Grid 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 National Grid and Iberdrola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between National Grid plc and Iberdrola SA, you can compare the effects of market volatilities on National Grid 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 National Grid with a short position of Iberdrola. Check out your portfolio center. Please also check ongoing floating volatility patterns of National Grid and Iberdrola.
Diversification Opportunities for National Grid and Iberdrola
0.33 | Correlation Coefficient |
Weak diversification
The 3 months correlation between National and Iberdrola is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding National Grid plc and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and National Grid 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 National Grid plc 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 National Grid i.e., National Grid and Iberdrola go up and down completely randomly.
Pair Corralation between National Grid and Iberdrola
Assuming the 90 days trading horizon National Grid plc is expected to generate 1.22 times more return on investment than Iberdrola. However, National Grid is 1.22 times more volatile than Iberdrola SA. It trades about 0.09 of its potential returns per unit of risk. Iberdrola SA is currently generating about -0.03 per unit of risk. If you would invest 5,700 in National Grid plc on September 4, 2024 and sell it today you would earn a total of 200.00 from holding National Grid plc or generate 3.51% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
National Grid plc vs. Iberdrola SA
Performance |
| Timeline |
| National Grid plc |
| Iberdrola SA |
National Grid and Iberdrola Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with National Grid and Iberdrola
The main advantage of trading using opposite National Grid and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if National Grid 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.| National Grid vs. Lion Biotechnologies | National Grid vs. Amkor Technology | National Grid vs. SEI INVESTMENTS | National Grid vs. NetSol Technologies |
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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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