Correlation Between Orica and Innospec

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

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

Diversification Opportunities for Orica and Innospec

-0.35

Correlation Coefficient

Orica  Innospec

Very good diversification

The 3 months correlation between Orica and Innospec is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Orica Limited and Innospec in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Innospec and Orica 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 Orica Limited are associated (or correlated) with Innospec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Innospec has no effect on the direction of Orica i.e., Orica and Innospec go up and down completely randomly.

Pair Corralation between Orica and Innospec

Assuming the 90 days horizon Orica Limited is expected to generate 0.7 times more return on investment than Innospec. However, Orica Limited is 1.43 times less risky than Innospec. It trades about 0.17 of its potential returns per unit of risk. Innospec is currently generating about -0.1 per unit of risk. If you would invest  968.00  in Orica Limited on December 29, 2024 and sell it today you would earn a total of  132.00  from holding Orica Limited or generate 13.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Orica Limited  vs.  Innospec

Orica Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Orica Limited are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Orica reported solid returns over the last few months and may actually be approaching a breakup point.

Innospec

Risk-Adjusted Performance

Very Weak

Over the last 90 days Innospec has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Orica and Innospec

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

The idea behind Orica Limited and Innospec 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.