Correlation Between EDP Renovaveis and Orsted AS

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

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

Diversification Opportunities for EDP Renovaveis and Orsted AS

0.85

Correlation Coefficient

EDP Renovaveis  Orsted AS

Very poor diversification

The 3 months correlation between EDP and Orsted is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding EDP Renovaveis and Orsted AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orsted AS and EDP Renovaveis 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 Renovaveis are associated (or correlated) with Orsted AS. 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 has no effect on the direction of EDP Renovaveis i.e., EDP Renovaveis and Orsted AS go up and down completely randomly.

Pair Corralation between EDP Renovaveis and Orsted AS

Assuming the 90 days horizon EDP Renovaveis is expected to under-perform the Orsted AS. But the pink sheet apears to be less risky and, when comparing its historical volatility, EDP Renovaveis is 1.54 times less risky than Orsted AS. The pink sheet trades about -0.19 of its potential returns per unit of risk. The Orsted AS is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  5,832  in Orsted AS on September 3, 2024 and sell it today you would lose (399.00) from holding Orsted AS or give up 6.84% of portfolio value over 90 days.

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

EDP Renovaveis  vs.  Orsted AS

EDP Renovaveis

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EDP Renovaveis has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Orsted AS

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 AS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with EDP Renovaveis and Orsted AS

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

The idea behind EDP Renovaveis 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.

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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 Equity Valuation module to check real value of public entities based on technical and fundamental data.