Correlation Between FormFactor and AudioEye

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

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

Diversification Opportunities for FormFactor and AudioEye

0.51

Correlation Coefficient

FormFactor  AudioEye

Very weak diversification

The 3 months correlation between FormFactor and AudioEye is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding FormFactor and AudioEye in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AudioEye and FormFactor 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 FormFactor are associated (or correlated) with AudioEye. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AudioEye has no effect on the direction of FormFactor i.e., FormFactor and AudioEye go up and down completely randomly.

Pair Corralation between FormFactor and AudioEye

Given the investment horizon of 90 days FormFactor is expected to under-perform the AudioEye. But the stock apears to be less risky and, when comparing its historical volatility, FormFactor is 3.75 times less risky than AudioEye. The stock trades about -0.07 of its potential returns per unit of risk. The AudioEye is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest  1,043  in AudioEye on January 26, 2024 and sell it today you would earn a total of  400.00  from holding AudioEye or generate 38.35% return on investment over 90 days.

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

FormFactor  vs.  AudioEye

FormFactor

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FormFactor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, FormFactor is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

AudioEye

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in AudioEye are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, AudioEye exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FormFactor and AudioEye

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

The idea behind FormFactor and AudioEye 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..