Correlation Between Neo Performance and Orica

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

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

Diversification Opportunities for Neo Performance and Orica

0.37

Correlation Coefficient

Neo Performance  Orica

Weak diversification

The 3 months correlation between Neo and Orica is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Neo Performance Materials and Orica Ltd ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orica Ltd ADR and Neo Performance 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 Neo Performance Materials 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 Ltd ADR has no effect on the direction of Neo Performance i.e., Neo Performance and Orica go up and down completely randomly.

Pair Corralation between Neo Performance and Orica

Assuming the 90 days horizon Neo Performance Materials is expected to generate 0.65 times more return on investment than Orica. However, Neo Performance Materials is 1.55 times less risky than Orica. It trades about 0.05 of its potential returns per unit of risk. Orica Ltd ADR is currently generating about 0.01 per unit of risk. If you would invest  567.00  in Neo Performance Materials on September 13, 2024 and sell it today you would earn a total of  34.00  from holding Neo Performance Materials or generate 6.0% return on investment over 90 days.

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

Neo Performance Materials  vs.  Orica Ltd ADR

Neo Performance Materials

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Neo Performance Materials are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak primary indicators, Neo Performance may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Orica Ltd ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orica Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, Orica is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Neo Performance and Orica

The main advantage of trading using opposite Neo Performance and Orica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Neo Performance 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 Neo Performance Materials and Orica Ltd ADR 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.