Correlation Between Home First and Ortel Communications

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

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

Diversification Opportunities for Home First and Ortel Communications

0.63

Correlation Coefficient

Home First  Ortel Communications

Poor diversification

The 3 months correlation between Home and Ortel is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Home First Finance and Ortel Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ortel Communications and Home First 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 Home First Finance 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 Home First i.e., Home First and Ortel Communications go up and down completely randomly.

Pair Corralation between Home First and Ortel Communications

Assuming the 90 days trading horizon Home First Finance is expected to generate 0.87 times more return on investment than Ortel Communications. However, Home First Finance is 1.15 times less risky than Ortel Communications. It trades about 0.07 of its potential returns per unit of risk. Ortel Communications Limited is currently generating about -0.08 per unit of risk. If you would invest  100,025  in Home First Finance on December 23, 2024 and sell it today you would earn a total of  10,290  from holding Home First Finance or generate 10.29% return on investment over 90 days.

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

Home First Finance  vs.  Ortel Communications Limited

Home First Finance

Risk-Adjusted Performance

Modest

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

Ortel Communications

Risk-Adjusted Performance

Very Weak

Over the last 90 days Ortel Communications Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Home First and Ortel Communications

The main advantage of trading using opposite Home First and Ortel Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Home First 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 Home First Finance 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.