Correlation Between Orica and Northern Technologies

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

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

Diversification Opportunities for Orica and Northern Technologies

-0.75

Correlation Coefficient

Orica  Northern Technologies

Pay attention - limited upside

The 3 months correlation between Orica and Northern is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Orica Limited and Northern Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Technologies 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 Northern Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Technologies has no effect on the direction of Orica i.e., Orica and Northern Technologies go up and down completely randomly.

Pair Corralation between Orica and Northern Technologies

Assuming the 90 days horizon Orica Limited is expected to generate 0.7 times more return on investment than Northern Technologies. However, Orica Limited is 1.43 times less risky than Northern Technologies. It trades about 0.17 of its potential returns per unit of risk. Northern Technologies is currently generating about -0.18 per unit of risk. If you would invest  968.00  in Orica Limited on December 30, 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	Weak
Accuracy	100.0%
Values	Daily Returns

Orica Limited  vs.  Northern Technologies

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.

Northern Technologies

Risk-Adjusted Performance

Very Weak

Over the last 90 days Northern Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's forward indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Orica and Northern Technologies

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

The idea behind Orica Limited and Northern Technologies 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.