Correlation Between Air Products and Orica

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

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

Diversification Opportunities for Air Products and Orica

-0.21

Correlation Coefficient

Air Products  Orica

Very good diversification

The 3 months correlation between Air and Orica is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Air Products and and Orica Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orica Ltd ADR and Air Products 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 Air Products and are associated (or correlated) with Orica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orica Ltd ADR has no effect on the direction of Air Products i.e., Air Products and Orica go up and down completely randomly.

Pair Corralation between Air Products and Orica

Considering the 90-day investment horizon Air Products is expected to generate 11.82 times less return on investment than Orica. But when comparing it to its historical volatility, Air Products and is 2.94 times less risky than Orica. It trades about 0.02 of its potential returns per unit of risk. Orica Ltd ADR is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  951.00  in Orica Ltd ADR on December 27, 2024 and sell it today you would earn a total of  202.00  from holding Orica Ltd ADR or generate 21.24% return on investment over 90 days.

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

Air Products and  vs.  Orica Ltd ADR

Air Products

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Air Products and are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Air Products is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Orica Ltd ADR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Orica Ltd ADR are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, Orica showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Air Products and Orica

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

The idea behind Air Products and and Orica Ltd ADR 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.