Correlation Between Okins Electronics and ABCO Electronics

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

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

Diversification Opportunities for Okins Electronics and ABCO Electronics

0.88

Correlation Coefficient

Okins Electronics  ABCO Electronics

Very poor diversification

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

Pair Corralation between Okins Electronics and ABCO Electronics

Assuming the 90 days trading horizon Okins Electronics Co is expected to generate 1.69 times more return on investment than ABCO Electronics. However, Okins Electronics is 1.69 times more volatile than ABCO Electronics Co. It trades about 0.12 of its potential returns per unit of risk. ABCO Electronics Co is currently generating about 0.13 per unit of risk. If you would invest  449,000  in Okins Electronics Co on December 24, 2024 and sell it today you would earn a total of  155,000  from holding Okins Electronics Co or generate 34.52% return on investment over 90 days.

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

Okins Electronics Co  vs.  ABCO Electronics Co

Okins Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Okins Electronics Co are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Okins Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

ABCO Electronics

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ABCO Electronics Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, ABCO Electronics sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Okins Electronics and ABCO Electronics

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

The idea behind Okins Electronics Co and ABCO Electronics Co 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.