Correlation Between Orient Rental and ORIX Leasing

Can any of the company-specific risk be diversified away by investing in both Orient Rental and ORIX Leasing 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 ORIX Leasing 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 ORIX Leasing Pakistan, you can compare the effects of market volatilities on Orient Rental and ORIX Leasing 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 ORIX Leasing. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orient Rental and ORIX Leasing.

Diversification Opportunities for Orient Rental and ORIX Leasing

0.88

Correlation Coefficient

Orient Rental  ORIX Leasing

Very poor diversification

The 3 months correlation between Orient and ORIX is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Orient Rental Modaraba and ORIX Leasing Pakistan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ORIX Leasing Pakistan 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 ORIX Leasing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ORIX Leasing Pakistan has no effect on the direction of Orient Rental i.e., Orient Rental and ORIX Leasing go up and down completely randomly.

Pair Corralation between Orient Rental and ORIX Leasing

Assuming the 90 days trading horizon Orient Rental Modaraba is expected to generate 1.66 times more return on investment than ORIX Leasing. However, Orient Rental is 1.66 times more volatile than ORIX Leasing Pakistan. It trades about 0.18 of its potential returns per unit of risk. ORIX Leasing Pakistan is currently generating about 0.26 per unit of risk. If you would invest  595.00  in Orient Rental Modaraba on September 15, 2024 and sell it today you would earn a total of  240.00  from holding Orient Rental Modaraba or generate 40.34% return on investment over 90 days.

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

Orient Rental Modaraba  vs.  ORIX Leasing Pakistan

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.

ORIX Leasing Pakistan

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ORIX Leasing Pakistan are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ORIX Leasing sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Orient Rental and ORIX Leasing

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

The idea behind Orient Rental Modaraba and ORIX Leasing Pakistan 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.