Correlation Between Industrial Investment and Ortel Communications

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

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

Diversification Opportunities for Industrial Investment and Ortel Communications

0.17

Correlation Coefficient

Industrial Investment  Ortel Communications

Average diversification

The 3 months correlation between Industrial and Ortel is 0.17. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Investment Trust and Ortel Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ortel Communications and Industrial Investment 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 Industrial Investment Trust 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 Industrial Investment i.e., Industrial Investment and Ortel Communications go up and down completely randomly.

Pair Corralation between Industrial Investment and Ortel Communications

Assuming the 90 days trading horizon Industrial Investment Trust is expected to generate 0.99 times more return on investment than Ortel Communications. However, Industrial Investment Trust is 1.01 times less risky than Ortel Communications. It trades about 0.25 of its potential returns per unit of risk. Ortel Communications Limited is currently generating about 0.1 per unit of risk. If you would invest  17,273  in Industrial Investment Trust on September 25, 2024 and sell it today you would earn a total of  20,852  from holding Industrial Investment Trust or generate 120.72% return on investment over 90 days.

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

Industrial Investment Trust  vs.  Ortel Communications Limited

Industrial Investment

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Investment Trust are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Industrial Investment unveiled solid returns over the last few months and may actually be approaching a breakup point.

Ortel Communications

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ortel Communications Limited are ranked lower than 12 (%) 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 Industrial Investment and Ortel Communications

The main advantage of trading using opposite Industrial Investment and Ortel Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Investment 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 Industrial Investment Trust 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.