Correlation Between Omega Flex and NAPCO Security

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

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

Diversification Opportunities for Omega Flex and NAPCO Security

-0.14

Correlation Coefficient

Omega Flex  NAPCO Security

Good diversification

The 3 months correlation between Omega and NAPCO is -0.14. Overlapping area represents the amount of risk that can be diversified away by holding Omega Flex and NAPCO Security Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NAPCO Security Techn and Omega Flex 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 Omega Flex are associated (or correlated) with NAPCO Security. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NAPCO Security Techn has no effect on the direction of Omega Flex i.e., Omega Flex and NAPCO Security go up and down completely randomly.

Pair Corralation between Omega Flex and NAPCO Security

Given the investment horizon of 90 days Omega Flex is expected to under-perform the NAPCO Security. In addition to that, Omega Flex is 1.1 times more volatile than NAPCO Security Technologies. It trades about -0.08 of its total potential returns per unit of risk. NAPCO Security Technologies is currently generating about 0.31 per unit of volatility. If you would invest  3,451  in NAPCO Security Technologies on September 5, 2024 and sell it today you would earn a total of  553.00  from holding NAPCO Security Technologies or generate 16.02% return on investment over 90 days.

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

Omega Flex  vs.  NAPCO Security Technologies

Omega Flex

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Omega Flex are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating essential indicators, Omega Flex may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NAPCO Security Techn

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NAPCO Security Technologies are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, NAPCO Security exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Omega Flex and NAPCO Security

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

The idea behind Omega Flex and NAPCO Security Technologies 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.