Correlation Between Orsted A/S and Verde Clean

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

Diversification Opportunities for Orsted A/S and Verde Clean

-0.41

Correlation Coefficient

Orsted A/S  Verde Clean

Very good diversification

The 3 months correlation between Orsted and Verde is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Orsted AS ADR and Verde Clean Fuels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verde Clean Fuels 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 Verde Clean. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verde Clean Fuels has no effect on the direction of Orsted A/S i.e., Orsted A/S and Verde Clean go up and down completely randomly.

Pair Corralation between Orsted A/S and Verde Clean

Assuming the 90 days horizon Orsted AS ADR is expected to under-perform the Verde Clean. But the pink sheet apears to be less risky and, when comparing its historical volatility, Orsted AS ADR is 48.45 times less risky than Verde Clean. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Verde Clean Fuels is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  21.00  in Verde Clean Fuels on September 2, 2024 and sell it today you would earn a total of  2.00  from holding Verde Clean Fuels or generate 9.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	89.06%
Values	Daily Returns

Orsted AS ADR  vs.  Verde Clean Fuels

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.

Verde Clean Fuels

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Verde Clean Fuels are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, Verde Clean showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Orsted A/S and Verde Clean

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

The idea behind Orsted AS ADR and Verde Clean Fuels 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..