Correlation Between Ormat Technologies and Castro

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

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

Diversification Opportunities for Ormat Technologies and Castro

0.74

Correlation Coefficient

Ormat Technologies  Castro

Poor diversification

The 3 months correlation between Ormat and Castro is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Ormat Technologies and Castro in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Castro and Ormat Technologies 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 Ormat Technologies are associated (or correlated) with Castro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Castro has no effect on the direction of Ormat Technologies i.e., Ormat Technologies and Castro go up and down completely randomly.

Pair Corralation between Ormat Technologies and Castro

Assuming the 90 days trading horizon Ormat Technologies is expected to generate 10.16 times less return on investment than Castro. But when comparing it to its historical volatility, Ormat Technologies is 1.71 times less risky than Castro. It trades about 0.04 of its potential returns per unit of risk. Castro is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  730,300  in Castro on September 13, 2024 and sell it today you would earn a total of  193,700  from holding Castro or generate 26.52% return on investment over 90 days.

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

Ormat Technologies  vs.  Castro

Ormat Technologies

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ormat Technologies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Ormat Technologies is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Castro

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Castro are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Castro sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ormat Technologies and Castro

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

The idea behind Ormat Technologies and Castro 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.