Correlation Between Renew Energy and Orsted A/S

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

By analyzing existing cross correlation between Renew Energy Global and Orsted AS ADR, you can compare the effects of market volatilities on Renew Energy and Orsted A/S 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 Renew Energy with a short position of Orsted A/S. Check out your portfolio center. Please also check ongoing floating volatility patterns of Renew Energy and Orsted A/S.

Diversification Opportunities for Renew Energy and Orsted A/S

0.76

Correlation Coefficient

Renew Energy  Orsted A/S

Poor diversification

The 3 months correlation between Renew and Orsted is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Renew Energy Global and Orsted AS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orsted AS ADR and Renew Energy 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 Renew Energy Global are associated (or correlated) with Orsted A/S. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orsted AS ADR has no effect on the direction of Renew Energy i.e., Renew Energy and Orsted A/S go up and down completely randomly.

Pair Corralation between Renew Energy and Orsted A/S

Considering the 90-day investment horizon Renew Energy Global is expected to generate 0.62 times more return on investment than Orsted A/S. However, Renew Energy Global is 1.61 times less risky than Orsted A/S. It trades about 0.1 of its potential returns per unit of risk. Orsted AS ADR is currently generating about -0.08 per unit of risk. If you would invest  584.00  in Renew Energy Global on August 31, 2024 and sell it today you would earn a total of  25.00  from holding Renew Energy Global or generate 4.28% return on investment over 90 days.

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

Renew Energy Global  vs.  Orsted AS ADR

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.

Orsted AS ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orsted AS ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Orsted A/S is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Renew Energy and Orsted A/S

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

The idea behind Renew Energy Global and Orsted AS ADR 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.