Correlation Between Tokyo Electric and Clearway Energy

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

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

Diversification Opportunities for Tokyo Electric and Clearway Energy

-0.02

Correlation Coefficient

Tokyo Electric  Clearway Energy

Good diversification

The 3 months correlation between Tokyo and Clearway is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Tokyo Electric Power and Clearway Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Clearway Energy and Tokyo Electric 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 Tokyo Electric Power 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 has no effect on the direction of Tokyo Electric i.e., Tokyo Electric and Clearway Energy go up and down completely randomly.

Pair Corralation between Tokyo Electric and Clearway Energy

Assuming the 90 days horizon Tokyo Electric Power is expected to generate 3.16 times more return on investment than Clearway Energy. However, Tokyo Electric is 3.16 times more volatile than Clearway Energy. It trades about 0.02 of its potential returns per unit of risk. Clearway Energy is currently generating about 0.01 per unit of risk. If you would invest  485.00  in Tokyo Electric Power on September 4, 2024 and sell it today you would lose (120.00) from holding Tokyo Electric Power or give up 24.74% of portfolio value over 90 days.

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

Tokyo Electric Power  vs.  Clearway Energy

Tokyo Electric Power

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Tokyo Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental 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

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Clearway Energy are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical and fundamental indicators, Clearway Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tokyo Electric and Clearway Energy

The main advantage of trading using opposite Tokyo Electric and Clearway Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tokyo Electric 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 Tokyo Electric Power and Clearway 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.