Correlation Between Clearway Energy and Orsted A/S

Can any of the company-specific risk be diversified away by investing in both Clearway 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 Clearway 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 Clearway Energy and Orsted AS, you can compare the effects of market volatilities on Clearway 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 Clearway Energy with a short position of Orsted A/S. Check out your portfolio center. Please also check ongoing floating volatility patterns of Clearway Energy and Orsted A/S.

Diversification Opportunities for Clearway Energy and Orsted A/S

0.23

Correlation Coefficient

Clearway Energy  Orsted A/S

Modest diversification

The 3 months correlation between Clearway and Orsted is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Clearway Energy and Orsted AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orsted A/S and Clearway 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 Clearway Energy 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 A/S has no effect on the direction of Clearway Energy i.e., Clearway Energy and Orsted A/S go up and down completely randomly.

Pair Corralation between Clearway Energy and Orsted A/S

Assuming the 90 days trading horizon Clearway Energy is expected to generate 0.58 times more return on investment than Orsted A/S. However, Clearway Energy is 1.72 times less risky than Orsted A/S. It trades about 0.06 of its potential returns per unit of risk. Orsted AS is currently generating about -0.01 per unit of risk. If you would invest  2,604  in Clearway Energy on September 2, 2024 and sell it today you would earn a total of  177.00  from holding Clearway Energy or generate 6.8% return on investment over 90 days.

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

Clearway Energy  vs.  Orsted AS

Clearway Energy

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Clearway Energy are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical and fundamental indicators, Clearway Energy may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Orsted A/S

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orsted AS has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Orsted A/S is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Clearway Energy and Orsted A/S

The main advantage of trading using opposite Clearway Energy and Orsted A/S positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Clearway 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 Clearway Energy and Orsted AS 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.