Correlation Between Caldwell Orkin and Adams Natural

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

By analyzing existing cross correlation between Caldwell Orkin Market and Adams Natural Resources, you can compare the effects of market volatilities on Caldwell Orkin and Adams Natural 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 Caldwell Orkin with a short position of Adams Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Caldwell Orkin and Adams Natural.

Diversification Opportunities for Caldwell Orkin and Adams Natural

0.7

Correlation Coefficient

Caldwell Orkin  Adams Natural

Poor diversification

The 3 months correlation between Caldwell and Adams is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Caldwell Orkin Market and Adams Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Adams Natural Resources and Caldwell Orkin 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 Caldwell Orkin Market are associated (or correlated) with Adams Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Adams Natural Resources has no effect on the direction of Caldwell Orkin i.e., Caldwell Orkin and Adams Natural go up and down completely randomly.

Pair Corralation between Caldwell Orkin and Adams Natural

Assuming the 90 days horizon Caldwell Orkin Market is expected to generate 1.39 times more return on investment than Adams Natural. However, Caldwell Orkin is 1.39 times more volatile than Adams Natural Resources. It trades about 0.2 of its potential returns per unit of risk. Adams Natural Resources is currently generating about 0.09 per unit of risk. If you would invest  4,457  in Caldwell Orkin Market on September 13, 2024 and sell it today you would earn a total of  800.00  from holding Caldwell Orkin Market or generate 17.95% return on investment over 90 days.

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

Caldwell Orkin Market  vs.  Adams Natural Resources

Caldwell Orkin Market

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Caldwell Orkin Market are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Caldwell Orkin showed solid returns over the last few months and may actually be approaching a breakup point.

Adams Natural Resources

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Adams Natural Resources are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of very healthy technical and fundamental indicators, Adams Natural is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Caldwell Orkin and Adams Natural

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

The idea behind Caldwell Orkin Market and Adams Natural Resources 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.