Correlation Between Orica and G6 Materials

Can any of the company-specific risk be diversified away by investing in both Orica and G6 Materials 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 Orica and G6 Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Orica Ltd ADR and G6 Materials Corp, you can compare the effects of market volatilities on Orica and G6 Materials 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 Orica with a short position of G6 Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orica and G6 Materials.

Diversification Opportunities for Orica and G6 Materials

0.36

Correlation Coefficient

Orica  G6 Materials

Weak diversification

The 3 months correlation between Orica and GPHBF is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Orica Ltd ADR and G6 Materials Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on G6 Materials Corp and Orica 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 Orica Ltd ADR are associated (or correlated) with G6 Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of G6 Materials Corp has no effect on the direction of Orica i.e., Orica and G6 Materials go up and down completely randomly.

Pair Corralation between Orica and G6 Materials

Assuming the 90 days horizon Orica Ltd ADR is expected to generate 0.32 times more return on investment than G6 Materials. However, Orica Ltd ADR is 3.17 times less risky than G6 Materials. It trades about -0.03 of its potential returns per unit of risk. G6 Materials Corp is currently generating about -0.02 per unit of risk. If you would invest  1,209  in Orica Ltd ADR on September 5, 2024 and sell it today you would lose (109.00) from holding Orica Ltd ADR or give up 9.02% of portfolio value over 90 days.

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

Orica Ltd ADR  vs.  G6 Materials Corp

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.

G6 Materials Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days G6 Materials Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's fundamental drivers remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Orica and G6 Materials

The main advantage of trading using opposite Orica and G6 Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orica position performs unexpectedly, G6 Materials 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 G6 Materials will offset losses from the drop in G6 Materials' long position.

The idea behind Orica Ltd ADR and G6 Materials Corp 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.