Correlation Between Fanuc and OMRON Corp

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

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

Diversification Opportunities for Fanuc and OMRON Corp

0.08

Correlation Coefficient

Fanuc  OMRON Corp

Significant diversification

The 3 months correlation between Fanuc and OMRON is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Fanuc and OMRON Corp ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OMRON Corp ADR and Fanuc 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 Fanuc are associated (or correlated) with OMRON Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OMRON Corp ADR has no effect on the direction of Fanuc i.e., Fanuc and OMRON Corp go up and down completely randomly.

Pair Corralation between Fanuc and OMRON Corp

Assuming the 90 days horizon Fanuc is expected to generate 2.88 times more return on investment than OMRON Corp. However, Fanuc is 2.88 times more volatile than OMRON Corp ADR. It trades about 0.06 of its potential returns per unit of risk. OMRON Corp ADR is currently generating about -0.1 per unit of risk. If you would invest  2,512  in Fanuc on December 28, 2024 and sell it today you would earn a total of  251.00  from holding Fanuc or generate 9.99% return on investment over 90 days.

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

Fanuc  vs.  OMRON Corp ADR

Fanuc

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fanuc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fanuc reported solid returns over the last few months and may actually be approaching a breakup point.

OMRON Corp ADR

Risk-Adjusted Performance

Very Weak

Over the last 90 days OMRON Corp ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Fanuc and OMRON Corp

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

The idea behind Fanuc and OMRON Corp ADR 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.