Can any of the company-specific risk be diversified away by investing in both Origin Agritech and Metcash 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 Origin Agritech and Metcash into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Origin Agritech and Metcash Limited, you can compare the effects of market volatilities on Origin Agritech and Metcash 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 Origin Agritech with a short position of Metcash. Check out your portfolio center. Please also check ongoing floating volatility patterns of Origin Agritech and Metcash.
Diversification Opportunities for Origin Agritech and Metcash
The 3 months correlation between Origin and Metcash is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Origin Agritech and Metcash Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Metcash Limited and Origin Agritech 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 Origin Agritech are associated (or correlated) with Metcash. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Metcash Limited has no effect on the direction of Origin Agritech i.e., Origin Agritech and Metcash go up and down completely randomly.
Pair Corralation between Origin Agritech and Metcash
Assuming the 90 days trading horizon Origin Agritech is expected to generate 7.33 times more return on investment than Metcash. However, Origin Agritech is 7.33 times more volatile than Metcash Limited. It trades about 0.23 of its potential returns per unit of risk. Metcash Limited is currently generating about -0.02 per unit of risk. If you would invest 310.00 in Origin Agritech on March 6, 2024 and sell it today you would earn a total of 152.00 from holding Origin Agritech or generate 49.03% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Origin Agritech are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Origin Agritech reported solid returns over the last few months and may actually be approaching a breakup point.
Compared to the overall equity markets, risk-adjusted returns on investments in Metcash Limited are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Metcash is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.