Correlation Between HEG and Ortel Communications

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

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

Diversification Opportunities for HEG and Ortel Communications

0.56

Correlation Coefficient

HEG  Ortel Communications

Very weak diversification

The 3 months correlation between HEG and Ortel is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding HEG Limited and Ortel Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ortel Communications and HEG 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 HEG Limited are associated (or correlated) with Ortel Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ortel Communications has no effect on the direction of HEG i.e., HEG and Ortel Communications go up and down completely randomly.

Pair Corralation between HEG and Ortel Communications

Assuming the 90 days trading horizon HEG Limited is expected to generate 66.57 times more return on investment than Ortel Communications. However, HEG is 66.57 times more volatile than Ortel Communications Limited. It trades about 0.2 of its potential returns per unit of risk. Ortel Communications Limited is currently generating about 0.07 per unit of risk. If you would invest  17,777  in HEG Limited on September 30, 2024 and sell it today you would earn a total of  33,753  from holding HEG Limited or generate 189.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.48%
Values	Daily Returns

HEG Limited  vs.  Ortel Communications Limited

HEG Limited

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in HEG Limited are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, HEG may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Ortel Communications

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Ortel Communications Limited are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Ortel Communications displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with HEG and Ortel Communications

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

The idea behind HEG Limited and Ortel Communications Limited 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.