Correlation Between RWE AG and Iberdrola
Can any of the company-specific risk be diversified away by investing in both RWE AG 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 RWE AG and Iberdrola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between RWE AG PK and Iberdrola SA, you can compare the effects of market volatilities on RWE AG 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 RWE AG with a short position of Iberdrola. Check out your portfolio center. Please also check ongoing floating volatility patterns of RWE AG and Iberdrola.
Diversification Opportunities for RWE AG and Iberdrola
Poor diversification
The 3 months correlation between RWE and Iberdrola is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding RWE AG PK and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and RWE AG 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 RWE AG PK 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 RWE AG i.e., RWE AG and Iberdrola go up and down completely randomly.
Pair Corralation between RWE AG and Iberdrola
Assuming the 90 days horizon RWE AG is expected to generate 1.38 times less return on investment than Iberdrola. In addition to that, RWE AG is 1.63 times more volatile than Iberdrola SA. It trades about 0.09 of its total potential returns per unit of risk. Iberdrola SA is currently generating about 0.2 per unit of volatility. If you would invest 1,328 in Iberdrola SA on October 21, 2024 and sell it today you would earn a total of 52.00 from holding Iberdrola SA or generate 3.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
RWE AG PK vs. Iberdrola SA
Performance |
| Timeline |
| RWE AG PK |
| Iberdrola SA |
RWE AG and Iberdrola Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with RWE AG and Iberdrola
The main advantage of trading using opposite RWE AG and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RWE AG 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.The idea behind RWE AG PK and Iberdrola 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.| Iberdrola vs. EDP Energias de | Iberdrola vs. ENEL Societa per | Iberdrola vs. Engie SA ADR | Iberdrola vs. RWE AG PK |
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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.
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