Correlation Between EDP Energias and Banco Comercial

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

By analyzing existing cross correlation between EDP Energias and Banco Comercial Portugues, you can compare the effects of market volatilities on EDP Energias and Banco Comercial 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 EDP Energias with a short position of Banco Comercial. Check out your portfolio center. Please also check ongoing floating volatility patterns of EDP Energias and Banco Comercial.

Diversification Opportunities for EDP Energias and Banco Comercial

0.94

Correlation Coefficient

EDP Energias  Banco Comercial

Almost no diversification

The 3 months correlation between EDP and Banco is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding EDP Energias and Banco Comercial Portugues in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Banco Comercial Portugues and EDP Energias 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 EDP Energias are associated (or correlated) with Banco Comercial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Banco Comercial Portugues has no effect on the direction of EDP Energias i.e., EDP Energias and Banco Comercial go up and down completely randomly.

Pair Corralation between EDP Energias and Banco Comercial

Assuming the 90 days trading horizon EDP Energias is expected to generate 1.1 times less return on investment than Banco Comercial. But when comparing it to its historical volatility, EDP Energias is 1.63 times less risky than Banco Comercial. It trades about 0.32 of its potential returns per unit of risk. Banco Comercial Portugues is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  53.00  in Banco Comercial Portugues on April 24, 2025 and sell it today you would earn a total of  14.00  from holding Banco Comercial Portugues or generate 26.42% return on investment over 90 days.

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

EDP Energias  vs.  Banco Comercial Portugues

EDP Energias

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in EDP Energias are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, EDP Energias unveiled solid returns over the last few months and may actually be approaching a breakup point.

Banco Comercial Portugues

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Banco Comercial Portugues are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Banco Comercial unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EDP Energias and Banco Comercial

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

The idea behind EDP Energias and Banco Comercial Portugues 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.