Correlation Between OReilly Automotive and Chiba Bank

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

By analyzing existing cross correlation between OReilly Automotive and Chiba Bank, you can compare the effects of market volatilities on OReilly Automotive and Chiba Bank 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 OReilly Automotive with a short position of Chiba Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of OReilly Automotive and Chiba Bank.

Diversification Opportunities for OReilly Automotive and Chiba Bank

0.79

Correlation Coefficient

OReilly Automotive  Chiba Bank

Poor diversification

The 3 months correlation between OReilly and Chiba is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding OReilly Automotive and Chiba Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chiba Bank and OReilly Automotive 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 OReilly Automotive are associated (or correlated) with Chiba Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chiba Bank has no effect on the direction of OReilly Automotive i.e., OReilly Automotive and Chiba Bank go up and down completely randomly.

Pair Corralation between OReilly Automotive and Chiba Bank

Assuming the 90 days horizon OReilly Automotive is expected to generate 0.6 times more return on investment than Chiba Bank. However, OReilly Automotive is 1.68 times less risky than Chiba Bank. It trades about 0.1 of its potential returns per unit of risk. Chiba Bank is currently generating about 0.03 per unit of risk. If you would invest  84,500  in OReilly Automotive on October 5, 2024 and sell it today you would earn a total of  31,100  from holding OReilly Automotive or generate 36.8% return on investment over 90 days.

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

OReilly Automotive  vs.  Chiba Bank

OReilly Automotive

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days OReilly Automotive has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unfluctuating basic indicators, OReilly Automotive may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Chiba Bank

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days Chiba Bank has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Chiba Bank is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with OReilly Automotive and Chiba Bank

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

The idea behind OReilly Automotive and Chiba Bank 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.