Correlation Between International Steels and ORIX Leasing

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

By analyzing existing cross correlation between International Steels and ORIX Leasing Pakistan, you can compare the effects of market volatilities on International Steels and ORIX Leasing 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 International Steels with a short position of ORIX Leasing. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Steels and ORIX Leasing.

Diversification Opportunities for International Steels and ORIX Leasing

0.85

Correlation Coefficient

International Steels  ORIX Leasing

Very poor diversification

The 3 months correlation between International and ORIX is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding International Steels and ORIX Leasing Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ORIX Leasing Pakistan and International Steels 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 International Steels are associated (or correlated) with ORIX Leasing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ORIX Leasing Pakistan has no effect on the direction of International Steels i.e., International Steels and ORIX Leasing go up and down completely randomly.

Pair Corralation between International Steels and ORIX Leasing

Assuming the 90 days trading horizon International Steels is expected to generate 1.45 times more return on investment than ORIX Leasing. However, International Steels is 1.45 times more volatile than ORIX Leasing Pakistan. It trades about 0.11 of its potential returns per unit of risk. ORIX Leasing Pakistan is currently generating about 0.15 per unit of risk. If you would invest  3,802  in International Steels on October 24, 2024 and sell it today you would earn a total of  5,439  from holding International Steels or generate 143.06% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.22%
Values	Daily Returns

International Steels  vs.  ORIX Leasing Pakistan

International Steels

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in International Steels are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively conflicting basic indicators, International Steels reported solid returns over the last few months and may actually be approaching a breakup point.

ORIX Leasing Pakistan

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ORIX Leasing Pakistan are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ORIX Leasing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Steels and ORIX Leasing

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

The idea behind International Steels and ORIX Leasing Pakistan 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.