Correlation Between Orica and Akzo Nobel
Can any of the company-specific risk be diversified away by investing in both Orica and Akzo Nobel 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 Orica and Akzo Nobel into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Orica Limited and Akzo Nobel NV, you can compare the effects of market volatilities on Orica and Akzo Nobel 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 Orica with a short position of Akzo Nobel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Orica and Akzo Nobel.
Diversification Opportunities for Orica and Akzo Nobel
-0.27 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Orica and Akzo is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Orica Limited and Akzo Nobel NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Akzo Nobel NV and Orica 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 Orica Limited are associated (or correlated) with Akzo Nobel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Akzo Nobel NV has no effect on the direction of Orica i.e., Orica and Akzo Nobel go up and down completely randomly.
Pair Corralation between Orica and Akzo Nobel
Assuming the 90 days horizon Orica Limited is expected to generate 0.54 times more return on investment than Akzo Nobel. However, Orica Limited is 1.86 times less risky than Akzo Nobel. It trades about -0.11 of its potential returns per unit of risk. Akzo Nobel NV is currently generating about -0.07 per unit of risk. If you would invest 1,230 in Orica Limited on September 1, 2024 and sell it today you would lose (170.00) from holding Orica Limited or give up 13.82% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Orica Limited vs. Akzo Nobel NV
Performance |
| Timeline |
| Orica Limited |
| Akzo Nobel NV |
Orica and Akzo Nobel Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Orica and Akzo Nobel
The main advantage of trading using opposite Orica and Akzo Nobel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Orica position performs unexpectedly, Akzo Nobel 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 Akzo Nobel will offset losses from the drop in Akzo Nobel's long position.The idea behind Orica Limited and Akzo Nobel NV 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.| Akzo Nobel vs. Sherwin Williams Co | Akzo Nobel vs. Air Liquide SA | Akzo Nobel vs. Air Products and | Akzo Nobel vs. Ecolab Inc |
Check out your portfolio center.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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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