Correlation Between Shell PLC and Origin Energy

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

By analyzing existing cross correlation between Shell PLC ADR and Origin Energy Ltd, you can compare the effects of market volatilities on Shell PLC and Origin Energy 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 Shell PLC with a short position of Origin Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Shell PLC and Origin Energy.

Diversification Opportunities for Shell PLC and Origin Energy

-0.35

Correlation Coefficient

Shell PLC  Origin Energy

Very good diversification

The 3 months correlation between Shell and Origin is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Shell PLC ADR and Origin Energy Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Origin Energy and Shell PLC 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 Shell PLC ADR are associated (or correlated) with Origin Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Origin Energy has no effect on the direction of Shell PLC i.e., Shell PLC and Origin Energy go up and down completely randomly.

Pair Corralation between Shell PLC and Origin Energy

Given the investment horizon of 90 days Shell PLC ADR is expected to under-perform the Origin Energy. But the stock apears to be less risky and, when comparing its historical volatility, Shell PLC ADR is 1.18 times less risky than Origin Energy. The stock trades about -0.06 of its potential returns per unit of risk. The Origin Energy Ltd is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  625.00  in Origin Energy Ltd on September 16, 2024 and sell it today you would earn a total of  25.00  from holding Origin Energy Ltd or generate 4.0% return on investment over 90 days.

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

Shell PLC ADR  vs.  Origin Energy Ltd

Shell PLC ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Shell PLC ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent technical and fundamental indicators, Shell PLC is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Origin Energy

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Origin Energy Ltd are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Origin Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Shell PLC and Origin Energy

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

The idea behind Shell PLC ADR and Origin Energy Ltd 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.