Correlation Between Orient Rental and Beco Steel

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

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

Diversification Opportunities for Orient Rental and Beco Steel

-0.32

Correlation Coefficient

Orient Rental  Beco Steel

Very good diversification

The 3 months correlation between Orient and Beco is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Orient Rental Modaraba and Beco Steel in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beco Steel and Orient Rental 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 Orient Rental Modaraba are associated (or correlated) with Beco Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beco Steel has no effect on the direction of Orient Rental i.e., Orient Rental and Beco Steel go up and down completely randomly.

Pair Corralation between Orient Rental and Beco Steel

Assuming the 90 days trading horizon Orient Rental Modaraba is expected to generate 1.46 times more return on investment than Beco Steel. However, Orient Rental is 1.46 times more volatile than Beco Steel. It trades about 0.12 of its potential returns per unit of risk. Beco Steel is currently generating about 0.14 per unit of risk. If you would invest  735.00  in Orient Rental Modaraba on September 5, 2024 and sell it today you would earn a total of  64.00  from holding Orient Rental Modaraba or generate 8.71% return on investment over 90 days.

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

Orient Rental Modaraba  vs.  Beco Steel

Orient Rental Modaraba

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Orient Rental Modaraba are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Orient Rental reported solid returns over the last few months and may actually be approaching a breakup point.

Beco Steel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Beco Steel has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Beco Steel is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Orient Rental and Beco Steel

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

The idea behind Orient Rental Modaraba and Beco Steel 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.