Correlation Between Orsted A/S and Kansai Electric

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

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

Diversification Opportunities for Orsted A/S and Kansai Electric

0.29

Correlation Coefficient

Orsted A/S  Kansai Electric

Modest diversification

The 3 months correlation between Orsted and Kansai is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Orsted AS and Kansai Electric Power in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kansai Electric Power 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 Kansai Electric. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kansai Electric Power has no effect on the direction of Orsted A/S i.e., Orsted A/S and Kansai Electric go up and down completely randomly.

Pair Corralation between Orsted A/S and Kansai Electric

Assuming the 90 days horizon Orsted A/S is expected to generate 5.15 times less return on investment than Kansai Electric. But when comparing it to its historical volatility, Orsted AS is 1.1 times less risky than Kansai Electric. It trades about 0.02 of its potential returns per unit of risk. Kansai Electric Power is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  561.00  in Kansai Electric Power on December 29, 2024 and sell it today you would earn a total of  105.00  from holding Kansai Electric Power or generate 18.72% return on investment over 90 days.

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

Orsted AS  vs.  Kansai Electric Power

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.

Kansai Electric Power

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Kansai Electric Power are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Kansai Electric showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Orsted A/S and Kansai Electric

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

The idea behind Orsted AS and Kansai Electric Power 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.