Correlation Between American Electric and Endesa SA

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

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

Diversification Opportunities for American Electric and Endesa SA

-0.72

Correlation Coefficient

American Electric  Endesa SA

Pay attention - limited upside

The 3 months correlation between American and Endesa is -0.72. Overlapping area represents the amount of risk that can be diversified away by holding American Electric Power and Endesa SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Endesa SA and American Electric 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 American Electric Power 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 American Electric i.e., American Electric and Endesa SA go up and down completely randomly.

Pair Corralation between American Electric and Endesa SA

Considering the 90-day investment horizon American Electric is expected to generate 7.18 times less return on investment than Endesa SA. But when comparing it to its historical volatility, American Electric Power is 4.02 times less risky than Endesa SA. It trades about 0.02 of its potential returns per unit of risk. Endesa SA is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,914  in Endesa SA on September 4, 2024 and sell it today you would earn a total of  286.00  from holding Endesa SA or generate 14.94% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	65.25%
Values	Daily Returns

American Electric Power  vs.  Endesa SA

American Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, American Electric is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Endesa SA

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Endesa SA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Endesa SA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with American Electric and Endesa SA

The main advantage of trading using opposite American Electric and Endesa SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Electric 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 American Electric Power 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.

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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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.