Correlation Between Repsol and Endesa SA
Can any of the company-specific risk be diversified away by investing in both Repsol and Endesa SA 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 Repsol and Endesa SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Repsol and Endesa SA, you can compare the effects of market volatilities on Repsol and Endesa SA 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 Repsol with a short position of Endesa SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Repsol and Endesa SA.
Diversification Opportunities for Repsol and Endesa SA
Modest diversification
The 3 months correlation between Repsol and Endesa is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Repsol and Endesa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endesa SA and Repsol 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 Repsol are associated (or correlated) with Endesa SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Endesa SA has no effect on the direction of Repsol i.e., Repsol and Endesa SA go up and down completely randomly.
Pair Corralation between Repsol and Endesa SA
Assuming the 90 days trading horizon Repsol is expected to under-perform the Endesa SA. In addition to that, Repsol is 1.07 times more volatile than Endesa SA. It trades about -0.01 of its total potential returns per unit of risk. Endesa SA is currently generating about 0.12 per unit of volatility. If you would invest 1,888 in Endesa SA on November 2, 2024 and sell it today you would earn a total of 254.00 from holding Endesa SA or generate 13.45% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Repsol vs. Endesa SA
Performance |
| Timeline |
| Repsol |
| Endesa SA |
Repsol and Endesa SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Repsol and Endesa SA
The main advantage of trading using opposite Repsol and Endesa SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Repsol position performs unexpectedly, Endesa SA 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 Endesa SA will offset losses from the drop in Endesa SA's long position.The idea behind Repsol and Endesa SA 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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