Correlation Between Orica and Oil Dri

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

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

Diversification Opportunities for Orica and Oil Dri

0.29

Correlation Coefficient

Orica  Oil Dri

Modest diversification

The 3 months correlation between Orica and Oil is 0.29. Overlapping area represents the amount of risk that can be diversified away by holding Orica Limited and Oil Dri in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Oil Dri 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 Oil Dri. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Oil Dri has no effect on the direction of Orica i.e., Orica and Oil Dri go up and down completely randomly.

Pair Corralation between Orica and Oil Dri

Assuming the 90 days horizon Orica Limited is expected to generate 0.57 times more return on investment than Oil Dri. However, Orica Limited is 1.74 times less risky than Oil Dri. It trades about 0.18 of its potential returns per unit of risk. Oil Dri is currently generating about 0.04 per unit of risk. If you would invest  968.00  in Orica Limited on December 27, 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	100.0%
Values	Daily Returns

Orica Limited  vs.  Oil Dri

Orica Limited

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Orica Limited are ranked lower than 14 (%) 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.

Oil Dri

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Oil Dri are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Oil Dri is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Orica and Oil Dri

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

The idea behind Orica Limited and Oil Dri 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..