Correlation Between ENEL Societa and Iberdrola

Can any of the company-specific risk be diversified away by investing in both ENEL Societa 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 ENEL Societa and Iberdrola into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ENEL Societa per and Iberdrola SA, you can compare the effects of market volatilities on ENEL Societa 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 ENEL Societa with a short position of Iberdrola. Check out your portfolio center. Please also check ongoing floating volatility patterns of ENEL Societa and Iberdrola.

Diversification Opportunities for ENEL Societa and Iberdrola

0.41

Correlation Coefficient

ENEL Societa  Iberdrola

Very weak diversification

The 3 months correlation between ENEL and Iberdrola is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding ENEL Societa per and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and ENEL Societa 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 ENEL Societa per 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 ENEL Societa i.e., ENEL Societa and Iberdrola go up and down completely randomly.

Pair Corralation between ENEL Societa and Iberdrola

Assuming the 90 days horizon ENEL Societa per is expected to under-perform the Iberdrola. In addition to that, ENEL Societa is 1.28 times more volatile than Iberdrola SA. It trades about -0.05 of its total potential returns per unit of risk. Iberdrola SA is currently generating about 0.01 per unit of volatility. If you would invest  1,232  in Iberdrola SA on January 24, 2024 and sell it today you would earn a total of  1.00  from holding Iberdrola SA or generate 0.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

ENEL Societa per  vs.  Iberdrola SA

ENEL Societa per

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ENEL Societa per has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, ENEL Societa is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Iberdrola SA

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Iberdrola SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Iberdrola is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with ENEL Societa and Iberdrola

The main advantage of trading using opposite ENEL Societa and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ENEL Societa 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 ENEL Societa per 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.

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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.