Correlation Between OSI Systems and Methode Electronics

Can any of the company-specific risk be diversified away by investing in both OSI Systems and Methode Electronics 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 OSI Systems and Methode Electronics into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between OSI Systems and Methode Electronics, you can compare the effects of market volatilities on OSI Systems and Methode Electronics 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 OSI Systems with a short position of Methode Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of OSI Systems and Methode Electronics.

Diversification Opportunities for OSI Systems and Methode Electronics

0.69

Correlation Coefficient

OSI Systems  Methode Electronics

Poor diversification

The 3 months correlation between OSI and Methode is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding OSI Systems and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics and OSI Systems 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 OSI Systems are associated (or correlated) with Methode Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Methode Electronics has no effect on the direction of OSI Systems i.e., OSI Systems and Methode Electronics go up and down completely randomly.

Pair Corralation between OSI Systems and Methode Electronics

Given the investment horizon of 90 days OSI Systems is expected to generate 0.58 times more return on investment than Methode Electronics. However, OSI Systems is 1.71 times less risky than Methode Electronics. It trades about 0.07 of its potential returns per unit of risk. Methode Electronics is currently generating about 0.03 per unit of risk. If you would invest  13,851  in OSI Systems on August 11, 2024 and sell it today you would earn a total of  1,270  from holding OSI Systems or generate 9.17% return on investment over 90 days.

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

OSI Systems  vs.  Methode Electronics

OSI Systems

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in OSI Systems are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak forward indicators, OSI Systems may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Methode Electronics

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Methode Electronics are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Methode Electronics is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with OSI Systems and Methode Electronics

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

The idea behind OSI Systems and Methode Electronics 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.

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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.