Correlation Between Obayashi and SiteOne Landscape

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

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

Diversification Opportunities for Obayashi and SiteOne Landscape

-0.02

Correlation Coefficient

Obayashi  SiteOne Landscape

Good diversification

The 3 months correlation between Obayashi and SiteOne is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Obayashi and SiteOne Landscape Supply in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SiteOne Landscape Supply and Obayashi 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 Obayashi are associated (or correlated) with SiteOne Landscape. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SiteOne Landscape Supply has no effect on the direction of Obayashi i.e., Obayashi and SiteOne Landscape go up and down completely randomly.

Pair Corralation between Obayashi and SiteOne Landscape

Assuming the 90 days horizon Obayashi is expected to generate 0.66 times more return on investment than SiteOne Landscape. However, Obayashi is 1.51 times less risky than SiteOne Landscape. It trades about -0.21 of its potential returns per unit of risk. SiteOne Landscape Supply is currently generating about -0.34 per unit of risk. If you would invest  1,400  in Obayashi on October 4, 2024 and sell it today you would lose (80.00) from holding Obayashi or give up 5.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Obayashi  vs.  SiteOne Landscape Supply

Obayashi

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Obayashi are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Obayashi reported solid returns over the last few months and may actually be approaching a breakup point.

SiteOne Landscape Supply

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SiteOne Landscape Supply has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Obayashi and SiteOne Landscape

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

The idea behind Obayashi and SiteOne Landscape Supply 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.