Correlation Between OSI Systems and Benchmark Electronics

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

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

Diversification Opportunities for OSI Systems and Benchmark Electronics

0.32

Correlation Coefficient

OSI Systems  Benchmark Electronics

Weak diversification

The 3 months correlation between OSI and Benchmark is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding OSI Systems and Benchmark Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Benchmark Electronics 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 Benchmark Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Benchmark Electronics has no effect on the direction of OSI Systems i.e., OSI Systems and Benchmark Electronics go up and down completely randomly.

Pair Corralation between OSI Systems and Benchmark Electronics

Given the investment horizon of 90 days OSI Systems is expected to generate 4.66 times less return on investment than Benchmark Electronics. But when comparing it to its historical volatility, OSI Systems is 1.56 times less risky than Benchmark Electronics. It trades about 0.06 of its potential returns per unit of risk. Benchmark Electronics is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  3,029  in Benchmark Electronics on March 13, 2024 and sell it today you would earn a total of  1,051  from holding Benchmark Electronics or generate 34.7% return on investment over 90 days.

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

OSI Systems  vs.  Benchmark Electronics

OSI Systems

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in OSI Systems are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain forward indicators, OSI Systems may actually be approaching a critical reversion point that can send shares even higher in July 2024.

Benchmark Electronics

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Benchmark Electronics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, Benchmark Electronics exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with OSI Systems and Benchmark Electronics

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

The idea behind OSI Systems and Benchmark Electronics 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.