Correlation Between Azure Power and Clearway Energy

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

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

Diversification Opportunities for Azure Power and Clearway Energy

0.22

Correlation Coefficient

Azure Power  Clearway Energy

Modest diversification

The 3 months correlation between Azure and Clearway is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Azure Power Global 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 Azure Power 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 Azure Power Global 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 Azure Power i.e., Azure Power and Clearway Energy go up and down completely randomly.

Pair Corralation between Azure Power and Clearway Energy

Given the investment horizon of 90 days Azure Power Global is expected to under-perform the Clearway Energy. In addition to that, Azure Power is 4.63 times more volatile than Clearway Energy Class. It trades about -0.13 of its total potential returns per unit of risk. Clearway Energy Class is currently generating about 0.0 per unit of volatility. If you would invest  3,056  in Clearway Energy Class on October 7, 2024 and sell it today you would lose (398.00) from holding Clearway Energy Class or give up 13.02% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	25.2%
Values	Daily Returns

Azure Power Global  vs.  Clearway Energy Class

Azure Power Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Azure Power Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Azure Power is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Clearway Energy Class

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Clearway Energy Class has generated negative risk-adjusted returns adding no value to investors with long positions. 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 Azure Power and Clearway Energy

The main advantage of trading using opposite Azure Power and Clearway Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Azure Power 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 Azure Power Global 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.

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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..