Correlation Between IBERDROLA ADR1 and Companhia Energtica

Can any of the company-specific risk be diversified away by investing in both IBERDROLA ADR1 and Companhia Energtica 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 IBERDROLA ADR1 and Companhia Energtica into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IBERDROLA ADR1 EO and Companhia Energtica de, you can compare the effects of market volatilities on IBERDROLA ADR1 and Companhia Energtica 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 IBERDROLA ADR1 with a short position of Companhia Energtica. Check out your portfolio center. Please also check ongoing floating volatility patterns of IBERDROLA ADR1 and Companhia Energtica.

Diversification Opportunities for IBERDROLA ADR1 and Companhia Energtica

-0.68

Correlation Coefficient

IBERDROLA ADR1  Companhia Energtica

Excellent diversification

The 3 months correlation between IBERDROLA and Companhia is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding IBERDROLA ADR1 EO and Companhia Energtica de in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia Energtica and IBERDROLA ADR1 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 IBERDROLA ADR1 EO are associated (or correlated) with Companhia Energtica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia Energtica has no effect on the direction of IBERDROLA ADR1 i.e., IBERDROLA ADR1 and Companhia Energtica go up and down completely randomly.

Pair Corralation between IBERDROLA ADR1 and Companhia Energtica

Assuming the 90 days trading horizon IBERDROLA ADR1 EO is expected to under-perform the Companhia Energtica. In addition to that, IBERDROLA ADR1 is 1.23 times more volatile than Companhia Energtica de. It trades about -0.07 of its total potential returns per unit of risk. Companhia Energtica de is currently generating about 0.06 per unit of volatility. If you would invest  178.00  in Companhia Energtica de on September 23, 2024 and sell it today you would earn a total of  7.00  from holding Companhia Energtica de or generate 3.93% return on investment over 90 days.

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

IBERDROLA ADR1 EO  vs.  Companhia Energtica de

IBERDROLA ADR1 EO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IBERDROLA ADR1 EO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Companhia Energtica

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Companhia Energtica de are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Companhia Energtica is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IBERDROLA ADR1 and Companhia Energtica

The main advantage of trading using opposite IBERDROLA ADR1 and Companhia Energtica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IBERDROLA ADR1 position performs unexpectedly, Companhia Energtica 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 Companhia Energtica will offset losses from the drop in Companhia Energtica's long position.

The idea behind IBERDROLA ADR1 EO and Companhia Energtica de 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.