Correlation Between SIL Investments and Ortel Communications

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

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

Diversification Opportunities for SIL Investments and Ortel Communications

0.26

Correlation Coefficient

SIL Investments  Ortel Communications

Modest diversification

The 3 months correlation between SIL and Ortel is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding SIL Investments Limited and Ortel Communications Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ortel Communications and SIL Investments 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 SIL Investments Limited are associated (or correlated) with Ortel Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ortel Communications has no effect on the direction of SIL Investments i.e., SIL Investments and Ortel Communications go up and down completely randomly.

Pair Corralation between SIL Investments and Ortel Communications

Assuming the 90 days trading horizon SIL Investments is expected to generate 1.19 times less return on investment than Ortel Communications. In addition to that, SIL Investments is 1.3 times more volatile than Ortel Communications Limited. It trades about 0.06 of its total potential returns per unit of risk. Ortel Communications Limited is currently generating about 0.1 per unit of volatility. If you would invest  167.00  in Ortel Communications Limited on September 25, 2024 and sell it today you would earn a total of  56.00  from holding Ortel Communications Limited or generate 33.53% return on investment over 90 days.

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

SIL Investments Limited  vs.  Ortel Communications Limited

SIL Investments

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SIL Investments Limited are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting forward indicators, SIL Investments sustained solid returns over the last few months and may actually be approaching a breakup point.

Ortel Communications

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ortel Communications Limited are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Ortel Communications displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with SIL Investments and Ortel Communications

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

The idea behind SIL Investments Limited and Ortel Communications Limited 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 Global Correlations module to find global opportunities by holding instruments from different markets.