Correlation Between Verbund AG and Clearway Energy

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

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

Diversification Opportunities for Verbund AG and Clearway Energy

0.22

Correlation Coefficient

Verbund AG  Clearway Energy

Modest diversification

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

Pair Corralation between Verbund AG and Clearway Energy

Assuming the 90 days horizon Verbund AG ADR is expected to under-perform the Clearway Energy. In addition to that, Verbund AG is 1.62 times more volatile than Clearway Energy Class. It trades about -0.07 of its total potential returns per unit of risk. Clearway Energy Class is currently generating about 0.01 per unit of volatility. If you would invest  2,800  in Clearway Energy Class on September 12, 2024 and sell it today you would earn a total of  8.00  from holding Clearway Energy Class or generate 0.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Verbund AG ADR  vs.  Clearway Energy Class

Verbund AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verbund AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

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 Verbund AG and Clearway Energy

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

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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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.