Correlation Between Orsted A/S and Clearway Energy

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

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

Diversification Opportunities for Orsted A/S and Clearway Energy

0.28

Correlation Coefficient

Orsted A/S  Clearway Energy

Modest diversification

The 3 months correlation between Orsted and Clearway is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Orsted AS ADR and Clearway Energy Class in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clearway Energy Class and Orsted A/S 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 Orsted AS ADR are associated (or correlated) with Clearway Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Clearway Energy Class has no effect on the direction of Orsted A/S i.e., Orsted A/S and Clearway Energy go up and down completely randomly.

Pair Corralation between Orsted A/S and Clearway Energy

Assuming the 90 days horizon Orsted AS ADR is expected to under-perform the Clearway Energy. In addition to that, Orsted A/S is 1.34 times more volatile than Clearway Energy Class. It trades about -0.02 of its total potential returns per unit of risk. Clearway Energy Class is currently generating about 0.05 per unit of volatility. If you would invest  2,808  in Clearway Energy Class on September 1, 2024 and sell it today you would earn a total of  141.00  from holding Clearway Energy Class or generate 5.02% return on investment over 90 days.

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

Orsted AS ADR  vs.  Clearway Energy Class

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.

Clearway Energy Class

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Clearway Energy Class are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy technical and fundamental indicators, Clearway Energy is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Orsted A/S and Clearway Energy

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

The idea behind Orsted AS ADR and Clearway Energy Class 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.