Correlation Between Azure Power and Renew Energy

Can any of the company-specific risk be diversified away by investing in both Azure Power and Renew 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 Renew 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 Renew Energy Global, you can compare the effects of market volatilities on Azure Power and Renew 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 Renew Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Azure Power and Renew Energy.

Diversification Opportunities for Azure Power and Renew Energy

0.28

Correlation Coefficient

Azure Power  Renew Energy

Modest diversification

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

Pair Corralation between Azure Power and Renew Energy

If you would invest  569.00  in Renew Energy Global on August 31, 2024 and sell it today you would earn a total of  40.00  from holding Renew Energy Global or generate 7.03% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	1.59%
Values	Daily Returns

Azure Power Global  vs.  Renew Energy Global

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.

Renew Energy Global

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Renew Energy Global are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Renew Energy may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Azure Power and Renew Energy

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

The idea behind Azure Power Global and Renew Energy Global 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.