Correlation Between Orion Engineered and Northern Technologies

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

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

Diversification Opportunities for Orion Engineered and Northern Technologies

0.48

Correlation Coefficient

Orion Engineered  Northern Technologies

Very weak diversification

The 3 months correlation between Orion and Northern is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Orion Engineered Carbons and Northern Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Technologies and Orion Engineered 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 Orion Engineered Carbons are associated (or correlated) with Northern Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Technologies has no effect on the direction of Orion Engineered i.e., Orion Engineered and Northern Technologies go up and down completely randomly.

Pair Corralation between Orion Engineered and Northern Technologies

Considering the 90-day investment horizon Orion Engineered is expected to generate 1.37 times less return on investment than Northern Technologies. In addition to that, Orion Engineered is 1.19 times more volatile than Northern Technologies. It trades about 0.03 of its total potential returns per unit of risk. Northern Technologies is currently generating about 0.05 per unit of volatility. If you would invest  1,300  in Northern Technologies on September 2, 2024 and sell it today you would earn a total of  92.00  from holding Northern Technologies or generate 7.08% return on investment over 90 days.

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

Orion Engineered Carbons  vs.  Northern Technologies

Orion Engineered Carbons

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Orion Engineered Carbons are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating technical and fundamental indicators, Orion Engineered may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Northern Technologies

Risk-Adjusted Performance

4 of 100

Insignificant

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

Pair Trading with Orion Engineered and Northern Technologies

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

The idea behind Orion Engineered Carbons and Northern Technologies 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.