Correlation Between Keyence and Electro Sensors

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

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

Diversification Opportunities for Keyence and Electro Sensors

0.25

Correlation Coefficient

Keyence  Electro Sensors

Modest diversification

The 3 months correlation between Keyence and Electro is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Keyence and Electro Sensors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electro Sensors and Keyence 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 Keyence are associated (or correlated) with Electro Sensors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electro Sensors has no effect on the direction of Keyence i.e., Keyence and Electro Sensors go up and down completely randomly.

Pair Corralation between Keyence and Electro Sensors

Assuming the 90 days horizon Keyence is expected to generate 1.1 times more return on investment than Electro Sensors. However, Keyence is 1.1 times more volatile than Electro Sensors. It trades about -0.02 of its potential returns per unit of risk. Electro Sensors is currently generating about -0.12 per unit of risk. If you would invest  41,628  in Keyence on December 29, 2024 and sell it today you would lose (2,478) from holding Keyence or give up 5.95% of portfolio value over 90 days.

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

Keyence  vs.  Electro Sensors

Keyence

Risk-Adjusted Performance

Very Weak

Over the last 90 days Keyence has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, Keyence is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Electro Sensors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Electro Sensors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Keyence and Electro Sensors

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

The idea behind Keyence and Electro Sensors 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.