Correlation Between Orsted AS and Brookfield Renewable

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

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

Diversification Opportunities for Orsted AS and Brookfield Renewable

0.22

Correlation Coefficient

Orsted AS  Brookfield Renewable

Modest diversification

The 3 months correlation between Orsted and Brookfield is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Orsted AS ADR and Brookfield Renewable Partners in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Brookfield Renewable and Orsted AS 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 ADR are associated (or correlated) with Brookfield Renewable. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Brookfield Renewable has no effect on the direction of Orsted AS i.e., Orsted AS and Brookfield Renewable go up and down completely randomly.

Pair Corralation between Orsted AS and Brookfield Renewable

Assuming the 90 days horizon Orsted AS ADR is expected to generate 1.23 times more return on investment than Brookfield Renewable. However, Orsted AS is 1.23 times more volatile than Brookfield Renewable Partners. It trades about 0.03 of its potential returns per unit of risk. Brookfield Renewable Partners is currently generating about -0.13 per unit of risk. If you would invest  1,808  in Orsted AS ADR on January 26, 2024 and sell it today you would earn a total of  20.00  from holding Orsted AS ADR or generate 1.11% 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 ADR  vs.  Brookfield Renewable Partners

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 AS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Brookfield Renewable

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Brookfield Renewable Partners has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Orsted AS and Brookfield Renewable

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

The idea behind Orsted AS ADR and Brookfield Renewable Partners 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.