Correlation Between Constellation Energy and Orsted A/S

Can any of the company-specific risk be diversified away by investing in both Constellation Energy and Orsted A/S 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 Constellation Energy and Orsted A/S into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Constellation Energy Corp and Orsted AS ADR, you can compare the effects of market volatilities on Constellation Energy and Orsted A/S 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 Constellation Energy with a short position of Orsted A/S. Check out your portfolio center. Please also check ongoing floating volatility patterns of Constellation Energy and Orsted A/S.

Diversification Opportunities for Constellation Energy and Orsted A/S

0.19

Correlation Coefficient

Constellation Energy  Orsted A/S

Average diversification

The 3 months correlation between Constellation and Orsted is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Constellation Energy Corp and Orsted AS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orsted AS ADR and Constellation Energy 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 Constellation Energy Corp are associated (or correlated) with Orsted A/S. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orsted AS ADR has no effect on the direction of Constellation Energy i.e., Constellation Energy and Orsted A/S go up and down completely randomly.

Pair Corralation between Constellation Energy and Orsted A/S

Considering the 90-day investment horizon Constellation Energy Corp is expected to generate 1.46 times more return on investment than Orsted A/S. However, Constellation Energy is 1.46 times more volatile than Orsted AS ADR. It trades about 0.16 of its potential returns per unit of risk. Orsted AS ADR is currently generating about -0.02 per unit of risk. If you would invest  17,750  in Constellation Energy Corp on September 1, 2024 and sell it today you would earn a total of  7,906  from holding Constellation Energy Corp or generate 44.54% return on investment over 90 days.

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

Constellation Energy Corp  vs.  Orsted AS ADR

Constellation Energy Corp

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Constellation Energy Corp are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Constellation Energy reported solid returns over the last few months and may actually be approaching a breakup point.

Orsted AS ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orsted AS ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Orsted A/S is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Constellation Energy and Orsted A/S

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

The idea behind Constellation Energy Corp and Orsted AS 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.