Correlation Between Oracle and Waterstone Financial

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

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

Diversification Opportunities for Oracle and Waterstone Financial

0.37

Correlation Coefficient

Oracle  Waterstone Financial

Weak diversification

The 3 months correlation between Oracle and Waterstone is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Oracle and Waterstone Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waterstone Financial and Oracle 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 Oracle are associated (or correlated) with Waterstone Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waterstone Financial has no effect on the direction of Oracle i.e., Oracle and Waterstone Financial go up and down completely randomly.

Pair Corralation between Oracle and Waterstone Financial

Given the investment horizon of 90 days Oracle is expected to generate 1.03 times more return on investment than Waterstone Financial. However, Oracle is 1.03 times more volatile than Waterstone Financial. It trades about 0.22 of its potential returns per unit of risk. Waterstone Financial is currently generating about 0.03 per unit of risk. If you would invest  13,919  in Oracle on September 3, 2024 and sell it today you would earn a total of  4,565  from holding Oracle or generate 32.8% return on investment over 90 days.

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

Oracle  vs.  Waterstone Financial

Oracle

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal fundamental indicators, Oracle disclosed solid returns over the last few months and may actually be approaching a breakup point.

Waterstone Financial

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Waterstone Financial are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental drivers, Waterstone Financial is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Oracle and Waterstone Financial

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

The idea behind Oracle and Waterstone Financial 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.