Correlation Between Green Star and Orica

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

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

Diversification Opportunities for Green Star and Orica

-0.05

Correlation Coefficient

Green Star  Orica

Good diversification

The 3 months correlation between Green and Orica is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Green Star Products 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 Green Star 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 Green Star Products 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 Green Star i.e., Green Star and Orica go up and down completely randomly.

Pair Corralation between Green Star and Orica

Given the investment horizon of 90 days Green Star Products is expected to generate 4.85 times more return on investment than Orica. However, Green Star is 4.85 times more volatile than Orica Ltd ADR. It trades about 0.12 of its potential returns per unit of risk. Orica Ltd ADR is currently generating about 0.06 per unit of risk. If you would invest  0.08  in Green Star Products on December 28, 2024 and sell it today you would earn a total of  0.02  from holding Green Star Products or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Green Star Products  vs.  Orica Ltd ADR

Green Star Products

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Green Star Products are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Green Star demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Orica Ltd ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Orica Ltd ADR are ranked lower than 4 (%) 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 Green Star and Orica

The main advantage of trading using opposite Green Star and Orica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Green Star 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 Green Star Products 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.

Check out your portfolio center.

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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.