Correlation Between Deswell Industries and OSI Systems

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

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

Diversification Opportunities for Deswell Industries and OSI Systems

0.28

Correlation Coefficient

Deswell Industries  OSI Systems

Modest diversification

The 3 months correlation between Deswell and OSI is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Deswell Industries and OSI Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OSI Systems and Deswell Industries 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 Deswell Industries are associated (or correlated) with OSI Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OSI Systems has no effect on the direction of Deswell Industries i.e., Deswell Industries and OSI Systems go up and down completely randomly.

Pair Corralation between Deswell Industries and OSI Systems

Given the investment horizon of 90 days Deswell Industries is expected to under-perform the OSI Systems. But the stock apears to be less risky and, when comparing its historical volatility, Deswell Industries is 1.02 times less risky than OSI Systems. The stock trades about 0.0 of its potential returns per unit of risk. The OSI Systems is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  14,487  in OSI Systems on September 14, 2024 and sell it today you would earn a total of  4,288  from holding OSI Systems or generate 29.6% return on investment over 90 days.

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

Deswell Industries  vs.  OSI Systems

Deswell Industries

Risk-Adjusted Performance

0 of 100

Very Weak

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

OSI Systems

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in OSI Systems are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, OSI Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deswell Industries and OSI Systems

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

The idea behind Deswell Industries and OSI Systems 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.