Correlation Between Enel SpA and AES

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

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

Diversification Opportunities for Enel SpA and AES

-0.17

Correlation Coefficient

Enel SpA  AES

Good diversification

The 3 months correlation between Enel and AES is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding Enel SpA and The AES in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AES 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 AES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AES has no effect on the direction of Enel SpA i.e., Enel SpA and AES go up and down completely randomly.

Pair Corralation between Enel SpA and AES

Assuming the 90 days trading horizon Enel SpA is expected to generate 0.88 times more return on investment than AES. However, Enel SpA is 1.14 times less risky than AES. It trades about 0.02 of its potential returns per unit of risk. The AES is currently generating about 0.0 per unit of risk. If you would invest  506.00  in Enel SpA on January 28, 2024 and sell it today you would earn a total of  74.00  from holding Enel SpA or generate 14.62% return on investment over 90 days.

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

Enel SpA  vs.  The AES

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

AES

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in The AES are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, AES 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 AES

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

The idea behind Enel SpA and The AES 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.