Correlation Between Orica and Johnson Matthey

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

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

Diversification Opportunities for Orica and Johnson Matthey

0.48

Correlation Coefficient

Orica  Johnson Matthey

Very weak diversification

The 3 months correlation between Orica and Johnson is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Orica Limited and Johnson Matthey PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Johnson Matthey PLC 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 Johnson Matthey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Johnson Matthey PLC has no effect on the direction of Orica i.e., Orica and Johnson Matthey go up and down completely randomly.

Pair Corralation between Orica and Johnson Matthey

Assuming the 90 days horizon Orica Limited is expected to generate 0.68 times more return on investment than Johnson Matthey. However, Orica Limited is 1.47 times less risky than Johnson Matthey. It trades about 0.18 of its potential returns per unit of risk. Johnson Matthey PLC is currently generating about 0.07 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 Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Orica Limited  vs.  Johnson Matthey PLC

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.

Johnson Matthey PLC

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Johnson Matthey PLC are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain essential indicators, Johnson Matthey may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Orica and Johnson Matthey

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

The idea behind Orica Limited and Johnson Matthey PLC 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.