Correlation Between Keyence and OMRON Corp

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

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

Diversification Opportunities for Keyence and OMRON Corp

0.84

Correlation Coefficient

Keyence  OMRON Corp

Very poor diversification

The 3 months correlation between Keyence and OMRON is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Keyence 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 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 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 Keyence i.e., Keyence and OMRON Corp go up and down completely randomly.

Pair Corralation between Keyence and OMRON Corp

Assuming the 90 days horizon Keyence is expected to generate 1.32 times more return on investment than OMRON Corp. However, Keyence is 1.32 times more volatile than OMRON Corp ADR. It trades about -0.04 of its potential returns per unit of risk. OMRON Corp ADR is currently generating about -0.21 per unit of risk. If you would invest  46,517  in Keyence on September 14, 2024 and sell it today you would lose (3,517) from holding Keyence or give up 7.56% of portfolio value over 90 days.

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

Keyence  vs.  OMRON Corp ADR

Keyence

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Keyence has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest abnormal performance, the Stock's fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

OMRON Corp ADR

Risk-Adjusted Performance

0 of 100

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 fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Keyence and OMRON Corp

The main advantage of trading using opposite Keyence and OMRON Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Keyence 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 Keyence 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.