Correlation Between Oriental Precision and Aurora World

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

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

Diversification Opportunities for Oriental Precision and Aurora World

0.66

Correlation Coefficient

Oriental Precision  Aurora World

Poor diversification

The 3 months correlation between Oriental and Aurora is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Oriental Precision Engineering and Aurora World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Aurora World and Oriental Precision 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 Oriental Precision Engineering are associated (or correlated) with Aurora World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Aurora World has no effect on the direction of Oriental Precision i.e., Oriental Precision and Aurora World go up and down completely randomly.

Pair Corralation between Oriental Precision and Aurora World

Assuming the 90 days trading horizon Oriental Precision Engineering is expected to generate 2.13 times more return on investment than Aurora World. However, Oriental Precision is 2.13 times more volatile than Aurora World. It trades about 0.11 of its potential returns per unit of risk. Aurora World is currently generating about 0.13 per unit of risk. If you would invest  418,000  in Oriental Precision Engineering on September 23, 2024 and sell it today you would earn a total of  108,000  from holding Oriental Precision Engineering or generate 25.84% return on investment over 90 days.

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

Oriental Precision Engineering  vs.  Aurora World

Oriental Precision

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Oriental Precision Engineering are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Oriental Precision sustained solid returns over the last few months and may actually be approaching a breakup point.

Aurora World

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aurora World are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Aurora World sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oriental Precision and Aurora World

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

The idea behind Oriental Precision Engineering and Aurora World 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.