Correlation Between Naturgy BAN and Distribuidora

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

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

Diversification Opportunities for Naturgy BAN and Distribuidora

0.97

Correlation Coefficient

Naturgy BAN  Distribuidora

Almost no diversification

The 3 months correlation between Naturgy and Distribuidora is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Naturgy BAN SA and Distribuidora de Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Distribuidora de Gas and Naturgy BAN 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 Naturgy BAN SA are associated (or correlated) with Distribuidora. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Distribuidora de Gas has no effect on the direction of Naturgy BAN i.e., Naturgy BAN and Distribuidora go up and down completely randomly.

Pair Corralation between Naturgy BAN and Distribuidora

Assuming the 90 days trading horizon Naturgy BAN SA is expected to generate 1.03 times more return on investment than Distribuidora. However, Naturgy BAN is 1.03 times more volatile than Distribuidora de Gas. It trades about 0.32 of its potential returns per unit of risk. Distribuidora de Gas is currently generating about 0.27 per unit of risk. If you would invest  125,000  in Naturgy BAN SA on September 16, 2024 and sell it today you would earn a total of  97,000  from holding Naturgy BAN SA or generate 77.6% return on investment over 90 days.

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

Naturgy BAN SA  vs.  Distribuidora de Gas

Naturgy BAN SA

Risk-Adjusted Performance

25 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Naturgy BAN SA are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Naturgy BAN sustained solid returns over the last few months and may actually be approaching a breakup point.

Distribuidora de Gas

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Distribuidora de Gas are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak fundamental drivers, Distribuidora sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Naturgy BAN and Distribuidora

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

The idea behind Naturgy BAN SA and Distribuidora de Gas 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.