Correlation Between SSE PLC and Iberdrola
Can any of the company-specific risk be diversified away by investing in both SSE PLC 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 SSE PLC and Iberdrola into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SSE PLC ADR and Iberdrola SA, you can compare the effects of market volatilities on SSE PLC 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 SSE PLC with a short position of Iberdrola. Check out your portfolio center. Please also check ongoing floating volatility patterns of SSE PLC and Iberdrola.
Diversification Opportunities for SSE PLC and Iberdrola
Poor diversification
The 3 months correlation between SSE and Iberdrola is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding SSE PLC ADR and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and SSE PLC 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 SSE PLC ADR 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 SSE PLC i.e., SSE PLC and Iberdrola go up and down completely randomly.
Pair Corralation between SSE PLC and Iberdrola
Assuming the 90 days horizon SSE PLC is expected to generate 1.66 times less return on investment than Iberdrola. In addition to that, SSE PLC is 1.15 times more volatile than Iberdrola SA. It trades about 0.03 of its total potential returns per unit of risk. Iberdrola SA is currently generating about 0.06 per unit of volatility. If you would invest 4,268 in Iberdrola SA on September 3, 2024 and sell it today you would earn a total of 1,416 from holding Iberdrola SA or generate 33.18% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
SSE PLC ADR vs. Iberdrola SA
Performance |
| Timeline |
| SSE PLC ADR |
| Iberdrola SA |
SSE PLC and Iberdrola Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SSE PLC and Iberdrola
The main advantage of trading using opposite SSE PLC and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SSE PLC 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.| SSE PLC vs. ENEL Societa per | SSE PLC vs. Allete Inc | SSE PLC vs. Companhia Energetica de | SSE PLC vs. The AES |
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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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.
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