Correlation Between Orica and NewMarket

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

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

Diversification Opportunities for Orica and NewMarket

0.2

Correlation Coefficient

Orica  NewMarket

Modest diversification

The 3 months correlation between Orica and NewMarket is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Orica Limited and NewMarket in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NewMarket 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 NewMarket. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NewMarket has no effect on the direction of Orica i.e., Orica and NewMarket go up and down completely randomly.

Pair Corralation between Orica and NewMarket

Assuming the 90 days horizon Orica Limited is expected to generate 0.72 times more return on investment than NewMarket. However, Orica Limited is 1.39 times less risky than NewMarket. It trades about 0.17 of its potential returns per unit of risk. NewMarket is currently generating about 0.06 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	Very Weak
Accuracy	98.39%
Values	Daily Returns

Orica Limited  vs.  NewMarket

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.

NewMarket

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NewMarket are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting technical and fundamental indicators, NewMarket may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Orica and NewMarket

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

The idea behind Orica Limited and NewMarket 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.