Correlation Between NewMarket and Orica

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

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

Diversification Opportunities for NewMarket and Orica

0.62

Correlation Coefficient

NewMarket  Orica

Poor diversification

The 3 months correlation between NewMarket and Orica is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding NewMarket and Orica Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orica Limited and NewMarket 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 NewMarket are associated (or correlated) with Orica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orica Limited has no effect on the direction of NewMarket i.e., NewMarket and Orica go up and down completely randomly.

Pair Corralation between NewMarket and Orica

Considering the 90-day investment horizon NewMarket is expected to generate 4.46 times more return on investment than Orica. However, NewMarket is 4.46 times more volatile than Orica Limited. It trades about -0.03 of its potential returns per unit of risk. Orica Limited is currently generating about -0.13 per unit of risk. If you would invest  55,347  in NewMarket on September 2, 2024 and sell it today you would lose (1,991) from holding NewMarket or give up 3.6% of portfolio value over 90 days.

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

NewMarket  vs.  Orica Limited

NewMarket

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NewMarket has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, NewMarket is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Orica Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with NewMarket and Orica

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

The idea behind NewMarket and Orica 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.