Correlation Between Aluminumof China and Enel SpA

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

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

Diversification Opportunities for Aluminumof China and Enel SpA

0.38

Correlation Coefficient

Aluminumof China  Enel SpA

Weak diversification

The 3 months correlation between Aluminumof and Enel is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Aluminum of and Enel SpA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Enel SpA and Aluminumof China 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 Aluminum of are associated (or correlated) with Enel SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Enel SpA has no effect on the direction of Aluminumof China i.e., Aluminumof China and Enel SpA go up and down completely randomly.

Pair Corralation between Aluminumof China and Enel SpA

Assuming the 90 days horizon Aluminum of is expected to under-perform the Enel SpA. In addition to that, Aluminumof China is 2.47 times more volatile than Enel SpA. It trades about -0.03 of its total potential returns per unit of risk. Enel SpA is currently generating about -0.01 per unit of volatility. If you would invest  690.00  in Enel SpA on September 28, 2024 and sell it today you would lose (15.00) from holding Enel SpA or give up 2.17% of portfolio value over 90 days.

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

Aluminum of  vs.  Enel SpA

Aluminumof China

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aluminum of has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Enel SpA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Aluminumof China and Enel SpA

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

The idea behind Aluminum of and Enel SpA 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.