Correlation Between Orica and Neo Performance

Can any of the company-specific risk be diversified away by investing in both Orica and Neo Performance 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 Neo Performance 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 Neo Performance Materials, you can compare the effects of market volatilities on Orica and Neo Performance 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 Neo Performance. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orica and Neo Performance.

Diversification Opportunities for Orica and Neo Performance

0.36

Correlation Coefficient

Orica  Neo Performance

Weak diversification

The 3 months correlation between Orica and Neo is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Orica Ltd ADR and Neo Performance Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Neo Performance Materials 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 Neo Performance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Neo Performance Materials has no effect on the direction of Orica i.e., Orica and Neo Performance go up and down completely randomly.

Pair Corralation between Orica and Neo Performance

Assuming the 90 days horizon Orica Ltd ADR is expected to generate 1.19 times more return on investment than Neo Performance. However, Orica is 1.19 times more volatile than Neo Performance Materials. It trades about 0.06 of its potential returns per unit of risk. Neo Performance Materials is currently generating about 0.07 per unit of risk. If you would invest  1,050  in Orica Ltd ADR on December 28, 2024 and sell it today you would earn a total of  103.00  from holding Orica Ltd ADR or generate 9.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Orica Ltd ADR  vs.  Neo Performance Materials

Orica Ltd ADR

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Orica Ltd ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly inconsistent fundamental indicators, Orica showed solid returns over the last few months and may actually be approaching a breakup point.

Neo Performance Materials

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Neo Performance Materials are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Neo Performance reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Orica and Neo Performance

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

The idea behind Orica Ltd ADR and Neo Performance Materials 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.