Correlation Between Xero and Oracle

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

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

Diversification Opportunities for Xero and Oracle

0.82

Correlation Coefficient

Xero  Oracle

Very poor diversification

The 3 months correlation between Xero and Oracle is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Xero and Oracle in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oracle and Xero 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 Xero are associated (or correlated) with Oracle. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oracle has no effect on the direction of Xero i.e., Xero and Oracle go up and down completely randomly.

Pair Corralation between Xero and Oracle

Assuming the 90 days horizon Xero is expected to generate 0.76 times more return on investment than Oracle. However, Xero is 1.32 times less risky than Oracle. It trades about -0.26 of its potential returns per unit of risk. Oracle is currently generating about -0.22 per unit of risk. If you would invest  11,000  in Xero on September 27, 2024 and sell it today you would lose (1,100) from holding Xero or give up 10.0% of portfolio value over 90 days.

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

Xero  vs.  Oracle

Xero

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xero are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xero may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Oracle

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Oracle may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Xero and Oracle

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

The idea behind Xero and Oracle 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .