Correlation Between Vestas Wind and Solar AS

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

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

Diversification Opportunities for Vestas Wind and Solar AS

0.89

Correlation Coefficient

Vestas Wind  Solar AS

Very poor diversification

The 3 months correlation between Vestas and Solar is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and Solar AS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solar AS and Vestas Wind 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 Vestas Wind Systems are associated (or correlated) with Solar AS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solar AS has no effect on the direction of Vestas Wind i.e., Vestas Wind and Solar AS go up and down completely randomly.

Pair Corralation between Vestas Wind and Solar AS

Assuming the 90 days trading horizon Vestas Wind Systems is expected to generate 1.45 times more return on investment than Solar AS. However, Vestas Wind is 1.45 times more volatile than Solar AS. It trades about 0.06 of its potential returns per unit of risk. Solar AS is currently generating about -0.06 per unit of risk. If you would invest  10,240  in Vestas Wind Systems on October 8, 2024 and sell it today you would earn a total of  215.00  from holding Vestas Wind Systems or generate 2.1% return on investment over 90 days.

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

Vestas Wind Systems  vs.  Solar AS

Vestas Wind Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vestas Wind Systems 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 very healthy which may send shares a bit higher in February 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Solar AS

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Vestas Wind and Solar AS

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

The idea behind Vestas Wind Systems and Solar AS 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.