Correlation Between ORMAT TECHNOLOGIES and US Foods

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

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

Diversification Opportunities for ORMAT TECHNOLOGIES and US Foods

-0.6

Correlation Coefficient

ORMAT TECHNOLOGIES  US Foods

Excellent diversification

The 3 months correlation between ORMAT and UFH is -0.6. Overlapping area represents the amount of risk that can be diversified away by holding ORMAT TECHNOLOGIES and US Foods Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Foods Holding and ORMAT TECHNOLOGIES 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 ORMAT TECHNOLOGIES are associated (or correlated) with US Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Foods Holding has no effect on the direction of ORMAT TECHNOLOGIES i.e., ORMAT TECHNOLOGIES and US Foods go up and down completely randomly.

Pair Corralation between ORMAT TECHNOLOGIES and US Foods

Assuming the 90 days trading horizon ORMAT TECHNOLOGIES is expected to generate 1.06 times more return on investment than US Foods. However, ORMAT TECHNOLOGIES is 1.06 times more volatile than US Foods Holding. It trades about 0.01 of its potential returns per unit of risk. US Foods Holding is currently generating about -0.1 per unit of risk. If you would invest  6,513  in ORMAT TECHNOLOGIES on December 21, 2024 and sell it today you would lose (15.00) from holding ORMAT TECHNOLOGIES or give up 0.23% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

ORMAT TECHNOLOGIES  vs.  US Foods Holding

ORMAT TECHNOLOGIES

Risk-Adjusted Performance

Weak

Over the last 90 days ORMAT TECHNOLOGIES has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ORMAT TECHNOLOGIES is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

US Foods Holding

Risk-Adjusted Performance

Very Weak

Over the last 90 days US Foods Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with ORMAT TECHNOLOGIES and US Foods

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

The idea behind ORMAT TECHNOLOGIES and US Foods Holding 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.