Correlation Between Oracle and Financial Services

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

By analyzing existing cross correlation between Oracle and Financial Services Portfolio, you can compare the effects of market volatilities on Oracle and Financial Services 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 Financial Services. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oracle and Financial Services.

Diversification Opportunities for Oracle and Financial Services

0.8

Correlation Coefficient

Oracle  Financial Services

Very poor diversification

The 3 months correlation between Oracle and Financial is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Oracle and Financial Services Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Financial Services 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 Financial Services. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Financial Services has no effect on the direction of Oracle i.e., Oracle and Financial Services go up and down completely randomly.

Pair Corralation between Oracle and Financial Services

Given the investment horizon of 90 days Oracle is expected to generate 1.87 times more return on investment than Financial Services. However, Oracle is 1.87 times more volatile than Financial Services Portfolio. It trades about 0.19 of its potential returns per unit of risk. Financial Services Portfolio is currently generating about 0.21 per unit of risk. If you would invest  14,043  in Oracle on September 4, 2024 and sell it today you would earn a total of  4,098  from holding Oracle or generate 29.18% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

Oracle  vs.  Financial Services Portfolio

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.

Financial Services

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Financial Services Portfolio are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Financial Services showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oracle and Financial Services

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

The idea behind Oracle and Financial Services Portfolio 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.