Correlation Between Talen Energy and Solar Alliance

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

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

Diversification Opportunities for Talen Energy and Solar Alliance

0.36

Correlation Coefficient

Talen Energy  Solar Alliance

Weak diversification

The 3 months correlation between Talen and Solar is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Talen Energy and Solar Alliance Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar Alliance Energy and Talen 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 Talen Energy are associated (or correlated) with Solar Alliance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar Alliance Energy has no effect on the direction of Talen Energy i.e., Talen Energy and Solar Alliance go up and down completely randomly.

Pair Corralation between Talen Energy and Solar Alliance

Considering the 90-day investment horizon Talen Energy is expected to generate 2.61 times less return on investment than Solar Alliance. But when comparing it to its historical volatility, Talen Energy is 2.48 times less risky than Solar Alliance. It trades about 0.04 of its potential returns per unit of risk. Solar Alliance Energy is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1.80  in Solar Alliance Energy on December 26, 2024 and sell it today you would lose (0.14) from holding Solar Alliance Energy or give up 7.78% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.36%
Values	Daily Returns

Talen Energy  vs.  Solar Alliance Energy

Talen Energy

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Talen Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile essential indicators, Talen Energy displayed solid returns over the last few months and may actually be approaching a breakup point.

Solar Alliance Energy

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Solar Alliance Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Solar Alliance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Talen Energy and Solar Alliance

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

The idea behind Talen Energy and Solar Alliance Energy 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.