Correlation Between Red Electrica and Avangrid

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

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

Diversification Opportunities for Red Electrica and Avangrid

-0.48

Correlation Coefficient

Red Electrica  Avangrid

Very good diversification

The 3 months correlation between Red and Avangrid is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Red Electrica Corporacion and Avangrid in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avangrid and Red Electrica 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 Red Electrica Corporacion are associated (or correlated) with Avangrid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avangrid has no effect on the direction of Red Electrica i.e., Red Electrica and Avangrid go up and down completely randomly.

Pair Corralation between Red Electrica and Avangrid

Assuming the 90 days horizon Red Electrica Corporacion is expected to generate 0.83 times more return on investment than Avangrid. However, Red Electrica Corporacion is 1.2 times less risky than Avangrid. It trades about 0.02 of its potential returns per unit of risk. Avangrid is currently generating about -0.01 per unit of risk. If you would invest  776.00  in Red Electrica Corporacion on September 15, 2024 and sell it today you would earn a total of  88.00  from holding Red Electrica Corporacion or generate 11.34% return on investment over 90 days.

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

Red Electrica Corporacion  vs.  Avangrid

Red Electrica Corporacion

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Red Electrica Corporacion has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Avangrid

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Avangrid are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical and fundamental indicators, Avangrid is not utilizing all of its potentials. The newest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Red Electrica and Avangrid

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

The idea behind Red Electrica Corporacion and Avangrid 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.