Correlation Between Electro Sensors and FARO Technologies

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Can any of the company-specific risk be diversified away by investing in both Electro Sensors and FARO Technologies 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 Electro Sensors and FARO Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Electro Sensors and FARO Technologies, you can compare the effects of market volatilities on Electro Sensors and FARO Technologies 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 Electro Sensors with a short position of FARO Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Electro Sensors and FARO Technologies.

Diversification Opportunities for Electro Sensors and FARO Technologies

0.18
  Correlation Coefficient

Average diversification

The 3 months correlation between Electro and FARO is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Electro-Sensors and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies and Electro Sensors 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 Electro Sensors are associated (or correlated) with FARO Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FARO Technologies has no effect on the direction of Electro Sensors i.e., Electro Sensors and FARO Technologies go up and down completely randomly.

Pair Corralation between Electro Sensors and FARO Technologies

Given the investment horizon of 90 days Electro Sensors is expected to generate 1.12 times more return on investment than FARO Technologies. However, Electro Sensors is 1.12 times more volatile than FARO Technologies. It trades about 0.08 of its potential returns per unit of risk. FARO Technologies is currently generating about -0.05 per unit of risk. If you would invest  405.00  in Electro Sensors on December 29, 2023 and sell it today you would earn a total of  12.00  from holding Electro Sensors or generate 2.96% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy95.45%
ValuesDaily Returns

Electro-Sensors  vs.  FARO Technologies

 Performance 
       Timeline  
Electro-Sensors 

Risk-Adjusted Performance

8 of 100

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

Risk-Adjusted Performance

0 of 100

 
Low
 
High
Very Weak
Over the last 90 days FARO Technologies has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, FARO Technologies is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Electro Sensors and FARO Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Electro Sensors and FARO Technologies

The main advantage of trading using opposite Electro Sensors and FARO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Electro Sensors position performs unexpectedly, FARO Technologies 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 FARO Technologies will offset losses from the drop in FARO Technologies' long position.
The idea behind Electro Sensors and FARO 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.
Check out your portfolio center.
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 Stocks Directory module to find actively traded stocks across global markets.

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