Correlation Between Global Health and Ortel Communications

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

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

Diversification Opportunities for Global Health and Ortel Communications

0.33

Correlation Coefficient

Global Health  Ortel Communications

Weak diversification

The 3 months correlation between Global and Ortel is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Global Health 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 Global Health 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 Global Health 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 Global Health i.e., Global Health and Ortel Communications go up and down completely randomly.

Pair Corralation between Global Health and Ortel Communications

Assuming the 90 days trading horizon Global Health Limited is expected to under-perform the Ortel Communications. But the stock apears to be less risky and, when comparing its historical volatility, Global Health Limited is 1.52 times less risky than Ortel Communications. The stock trades about -0.27 of its potential returns per unit of risk. The Ortel Communications Limited is currently generating about -0.12 of returns per unit of risk over similar time horizon. If you would invest  222.00  in Ortel Communications Limited on October 7, 2024 and sell it today you would lose (11.00) from holding Ortel Communications Limited or give up 4.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.0%
Values	Daily Returns

Global Health Limited  vs.  Ortel Communications Limited

Global Health Limited

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Global Health Limited are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unfluctuating basic indicators, Global Health sustained solid returns over the last few months and may actually be approaching a breakup point.

Ortel Communications

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ortel Communications Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Ortel Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Global Health and Ortel Communications

The main advantage of trading using opposite Global Health and Ortel Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Global Health 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 Global Health 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.

Check out your portfolio center.

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.