Correlation Between Orsted A/S and EDP Renovaveis

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

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

Diversification Opportunities for Orsted A/S and EDP Renovaveis

-0.06

Correlation Coefficient

Orsted A/S  EDP Renovaveis

Good diversification

The 3 months correlation between Orsted and EDP is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Orsted AS and EDP Renovaveis in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EDP Renovaveis 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 are associated (or correlated) with EDP Renovaveis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EDP Renovaveis has no effect on the direction of Orsted A/S i.e., Orsted A/S and EDP Renovaveis go up and down completely randomly.

Pair Corralation between Orsted A/S and EDP Renovaveis

Assuming the 90 days horizon Orsted AS is expected to generate 1.98 times more return on investment than EDP Renovaveis. However, Orsted A/S is 1.98 times more volatile than EDP Renovaveis. It trades about 0.02 of its potential returns per unit of risk. EDP Renovaveis is currently generating about -0.08 per unit of risk. If you would invest  4,526  in Orsted AS on December 28, 2024 and sell it today you would lose (70.00) from holding Orsted AS or give up 1.55% of portfolio value over 90 days.

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

Orsted AS  vs.  EDP Renovaveis

Orsted A/S

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Orsted AS are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Orsted A/S is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

EDP Renovaveis

Risk-Adjusted Performance

Very Weak

Over the last 90 days EDP Renovaveis has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Orsted A/S and EDP Renovaveis

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

The idea behind Orsted AS and EDP Renovaveis 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.