Correlation Between Orion Engineered and 5E Advanced

Can any of the company-specific risk be diversified away by investing in both Orion Engineered and 5E Advanced 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 Orion Engineered and 5E Advanced into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Orion Engineered Carbons and 5E Advanced Materials, you can compare the effects of market volatilities on Orion Engineered and 5E Advanced 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 Orion Engineered with a short position of 5E Advanced. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orion Engineered and 5E Advanced.

Diversification Opportunities for Orion Engineered and 5E Advanced

0.71

Correlation Coefficient

Orion Engineered  5E Advanced

Poor diversification

The 3 months correlation between Orion and FEAM is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Orion Engineered Carbons and 5E Advanced Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on 5E Advanced Materials and Orion Engineered 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 Orion Engineered Carbons are associated (or correlated) with 5E Advanced. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of 5E Advanced Materials has no effect on the direction of Orion Engineered i.e., Orion Engineered and 5E Advanced go up and down completely randomly.

Pair Corralation between Orion Engineered and 5E Advanced

Considering the 90-day investment horizon Orion Engineered Carbons is expected to generate 0.21 times more return on investment than 5E Advanced. However, Orion Engineered Carbons is 4.83 times less risky than 5E Advanced. It trades about -0.1 of its potential returns per unit of risk. 5E Advanced Materials is currently generating about -0.13 per unit of risk. If you would invest  1,567  in Orion Engineered Carbons on December 27, 2024 and sell it today you would lose (224.00) from holding Orion Engineered Carbons or give up 14.29% of portfolio value over 90 days.

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

Orion Engineered Carbons  vs.  5E Advanced Materials

Orion Engineered Carbons

Risk-Adjusted Performance

Very Weak

Over the last 90 days Orion Engineered Carbons 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 technical and fundamental 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.

5E Advanced Materials

Risk-Adjusted Performance

Very Weak

Over the last 90 days 5E Advanced Materials 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 basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Orion Engineered and 5E Advanced

The main advantage of trading using opposite Orion Engineered and 5E Advanced positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orion Engineered position performs unexpectedly, 5E Advanced 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 5E Advanced will offset losses from the drop in 5E Advanced's long position.

The idea behind Orion Engineered Carbons and 5E Advanced 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.