Correlation Between IT Link and Orange SA

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

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

Diversification Opportunities for IT Link and Orange SA

0.05

Correlation Coefficient

IT Link  Orange SA

Significant diversification

The 3 months correlation between ALITL and Orange is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding IT Link and Orange SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orange SA and IT Link 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 IT Link are associated (or correlated) with Orange SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orange SA has no effect on the direction of IT Link i.e., IT Link and Orange SA go up and down completely randomly.

Pair Corralation between IT Link and Orange SA

Assuming the 90 days trading horizon IT Link is expected to generate 2.06 times more return on investment than Orange SA. However, IT Link is 2.06 times more volatile than Orange SA. It trades about 0.07 of its potential returns per unit of risk. Orange SA is currently generating about -0.12 per unit of risk. If you would invest  2,510  in IT Link on September 17, 2024 and sell it today you would earn a total of  220.00  from holding IT Link or generate 8.76% return on investment over 90 days.

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

IT Link  vs.  Orange SA

IT Link

Risk-Adjusted Performance

5 of 100

Modest

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

Orange SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orange SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak 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 IT Link and Orange SA

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

The idea behind IT Link and Orange SA 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.