Correlation Between Orica and Green Star

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

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

Diversification Opportunities for Orica and Green Star

-0.05

Correlation Coefficient

Orica  Green Star

Good diversification

The 3 months correlation between Orica and Green is -0.05. Overlapping area represents the amount of risk that can be diversified away by holding Orica Ltd ADR and Green Star Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Green Star Products 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 Ltd ADR are associated (or correlated) with Green Star. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Green Star Products has no effect on the direction of Orica i.e., Orica and Green Star go up and down completely randomly.

Pair Corralation between Orica and Green Star

Assuming the 90 days horizon Orica is expected to generate 10.07 times less return on investment than Green Star. But when comparing it to its historical volatility, Orica Ltd ADR is 4.85 times less risky than Green Star. It trades about 0.06 of its potential returns per unit of risk. Green Star Products is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  0.08  in Green Star Products on December 28, 2024 and sell it today you would earn a total of  0.02  from holding Green Star Products or generate 25.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.36%
Values	Daily Returns

Orica Ltd ADR  vs.  Green Star Products

Orica Ltd ADR

Risk-Adjusted Performance

Insignificant

Over the last 90 days Orica Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak fundamental indicators, Orica showed solid returns over the last few months and may actually be approaching a breakup point.

Green Star Products

Risk-Adjusted Performance

OK

Over the last 90 days Green Star Products has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly weak basic indicators, Green Star demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Orica and Green Star

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

The idea behind Orica Ltd ADR and Green Star Products 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.