Correlation Between Oracle and Block

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

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

Diversification Opportunities for Oracle and Block

0.8

Correlation Coefficient

Oracle  Block

Very poor diversification

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

Pair Corralation between Oracle and Block

Given the investment horizon of 90 days Oracle is expected to generate 1.16 times less return on investment than Block. But when comparing it to its historical volatility, Oracle is 1.25 times less risky than Block. It trades about 0.22 of its potential returns per unit of risk. Block Inc is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  6,417  in Block Inc on September 1, 2024 and sell it today you would earn a total of  2,438  from holding Block Inc or generate 37.99% return on investment over 90 days.

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

Oracle  vs.  Block Inc

Oracle

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Oracle are ranked lower than 17 (%) 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.

Block Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Block Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal basic indicators, Block reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Oracle and Block

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

The idea behind Oracle and Block Inc 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.