Correlation Between Enel SpA and Iberdrola

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

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

Diversification Opportunities for Enel SpA and Iberdrola

0.68

Correlation Coefficient

Enel SpA  Iberdrola

Poor diversification

The 3 months correlation between Enel and Iberdrola is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Enel SpA and Iberdrola SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Iberdrola SA and Enel SpA 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 SpA 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 SpA i.e., Enel SpA and Iberdrola go up and down completely randomly.

Pair Corralation between Enel SpA and Iberdrola

Assuming the 90 days horizon Enel SpA is expected to generate 0.78 times more return on investment than Iberdrola. However, Enel SpA is 1.28 times less risky than Iberdrola. It trades about -0.06 of its potential returns per unit of risk. Iberdrola SA is currently generating about -0.06 per unit of risk. If you would invest  708.00  in Enel SpA on September 22, 2024 and sell it today you would lose (32.00) from holding Enel SpA or give up 4.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.48%
Values	Daily Returns

Enel SpA  vs.  Iberdrola SA

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 basic indicators, Enel SpA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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. Despite nearly stable technical and fundamental 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 SpA and Iberdrola

The main advantage of trading using opposite Enel SpA and Iberdrola positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Enel SpA 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 SpA 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.