Correlation Between Oracle and Equity Income

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

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

Diversification Opportunities for Oracle and Equity Income

0.87

Correlation Coefficient

Oracle  Equity Income

Very poor diversification

The 3 months correlation between Oracle and Equity is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Oracle and Equity Income Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Equity Income and Oracle 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 Oracle are associated (or correlated) with Equity Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Equity Income has no effect on the direction of Oracle i.e., Oracle and Equity Income go up and down completely randomly.

Pair Corralation between Oracle and Equity Income

Given the investment horizon of 90 days Oracle is expected to generate 3.19 times more return on investment than Equity Income. However, Oracle is 3.19 times more volatile than Equity Income Fund. It trades about 0.1 of its potential returns per unit of risk. Equity Income Fund is currently generating about 0.15 per unit of risk. If you would invest  11,374  in Oracle on September 4, 2024 and sell it today you would earn a total of  6,915  from holding Oracle or generate 60.8% return on investment over 90 days.

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

Oracle  vs.  Equity Income Fund

Oracle

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite abnormal fundamental indicators, Oracle disclosed solid returns over the last few months and may actually be approaching a breakup point.

Equity Income

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Equity Income Fund are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Equity Income may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Oracle and Equity Income

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

The idea behind Oracle and Equity Income Fund 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.