Correlation Between Iberdrola and PacifiCorp

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

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

Diversification Opportunities for Iberdrola and PacifiCorp

-0.09

Correlation Coefficient

Iberdrola  PacifiCorp

Good diversification

The 3 months correlation between Iberdrola and PacifiCorp is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding Iberdrola SA and PacifiCorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PacifiCorp and Iberdrola 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 Iberdrola SA are associated (or correlated) with PacifiCorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PacifiCorp has no effect on the direction of Iberdrola i.e., Iberdrola and PacifiCorp go up and down completely randomly.

Pair Corralation between Iberdrola and PacifiCorp

Assuming the 90 days horizon Iberdrola SA is expected to generate 0.27 times more return on investment than PacifiCorp. However, Iberdrola SA is 3.75 times less risky than PacifiCorp. It trades about -0.02 of its potential returns per unit of risk. PacifiCorp is currently generating about -0.21 per unit of risk. If you would invest  4,962  in Iberdrola SA on January 26, 2024 and sell it today you would lose (28.00) from holding Iberdrola SA or give up 0.56% of portfolio value over 90 days.

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

Iberdrola SA  vs.  PacifiCorp

Iberdrola SA

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Iberdrola SA are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Iberdrola is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

PacifiCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PacifiCorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy essential indicators, PacifiCorp is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Iberdrola and PacifiCorp

The main advantage of trading using opposite Iberdrola and PacifiCorp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Iberdrola position performs unexpectedly, PacifiCorp 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 PacifiCorp will offset losses from the drop in PacifiCorp's long position.

The idea behind Iberdrola SA and PacifiCorp 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.

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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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.