Correlation Between IBERDROLA ADR1 and SSE PLC

Can any of the company-specific risk be diversified away by investing in both IBERDROLA ADR1 and SSE PLC 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 SSE PLC 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 SSE PLC ADR, you can compare the effects of market volatilities on IBERDROLA ADR1 and SSE PLC 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 SSE PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of IBERDROLA ADR1 and SSE PLC.

Diversification Opportunities for IBERDROLA ADR1 and SSE PLC

0.81

Correlation Coefficient

IBERDROLA ADR1  SSE PLC

Very poor diversification

The 3 months correlation between IBERDROLA and SSE is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding IBERDROLA ADR1 EO and SSE PLC ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SSE PLC ADR 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 SSE PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SSE PLC ADR has no effect on the direction of IBERDROLA ADR1 i.e., IBERDROLA ADR1 and SSE PLC go up and down completely randomly.

Pair Corralation between IBERDROLA ADR1 and SSE PLC

Assuming the 90 days trading horizon IBERDROLA ADR1 EO is expected to generate 0.99 times more return on investment than SSE PLC. However, IBERDROLA ADR1 EO is 1.01 times less risky than SSE PLC. It trades about -0.07 of its potential returns per unit of risk. SSE PLC ADR is currently generating about -0.19 per unit of risk. If you would invest  5,550  in IBERDROLA ADR1 EO on September 23, 2024 and sell it today you would lose (400.00) from holding IBERDROLA ADR1 EO or give up 7.21% of portfolio value over 90 days.

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

IBERDROLA ADR1 EO  vs.  SSE PLC ADR

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.

SSE PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SSE PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with IBERDROLA ADR1 and SSE PLC

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

The idea behind IBERDROLA ADR1 EO and SSE PLC ADR 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 Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.