Correlation Between OSI Systems and Deswell Industries

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

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

Diversification Opportunities for OSI Systems and Deswell Industries

-0.28

Correlation Coefficient

OSI Systems  Deswell Industries

Very good diversification

The 3 months correlation between OSI and Deswell is -0.28. Overlapping area represents the amount of risk that can be diversified away by holding OSI Systems and Deswell Industries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deswell Industries and OSI Systems 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 OSI Systems are associated (or correlated) with Deswell Industries. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deswell Industries has no effect on the direction of OSI Systems i.e., OSI Systems and Deswell Industries go up and down completely randomly.

Pair Corralation between OSI Systems and Deswell Industries

Given the investment horizon of 90 days OSI Systems is expected to generate 2.29 times more return on investment than Deswell Industries. However, OSI Systems is 2.29 times more volatile than Deswell Industries. It trades about 0.1 of its potential returns per unit of risk. Deswell Industries is currently generating about -0.07 per unit of risk. If you would invest  17,135  in OSI Systems on December 27, 2024 and sell it today you would earn a total of  2,895  from holding OSI Systems or generate 16.9% return on investment over 90 days.

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

OSI Systems  vs.  Deswell Industries

OSI Systems

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in OSI Systems are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating forward indicators, OSI Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Deswell Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days Deswell Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Deswell Industries is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with OSI Systems and Deswell Industries

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

The idea behind OSI Systems and Deswell Industries 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.