Correlation Between Engie SA and Iberdrola

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

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

Diversification Opportunities for Engie SA and Iberdrola

0.7

Correlation Coefficient

Engie SA  Iberdrola

Poor diversification

The 3 months correlation between Engie and Iberdrola is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Engie SA ADR and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and Engie SA 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 Engie SA 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 Engie SA i.e., Engie SA and Iberdrola go up and down completely randomly.

Pair Corralation between Engie SA and Iberdrola

Assuming the 90 days horizon Engie SA ADR is expected to under-perform the Iberdrola. But the pink sheet apears to be less risky and, when comparing its historical volatility, Engie SA ADR is 1.27 times less risky than Iberdrola. The pink sheet trades about -0.2 of its potential returns per unit of risk. The Iberdrola SA is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  5,857  in Iberdrola SA on September 5, 2024 and sell it today you would lose (237.00) from holding Iberdrola SA or give up 4.05% of portfolio value over 90 days.

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

Engie SA ADR  vs.  Iberdrola SA

Engie SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Engie SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Iberdrola SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Iberdrola SA has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Engie SA and Iberdrola

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

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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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.