Correlation Between Cepton and FARO Technologies

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

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

Diversification Opportunities for Cepton and FARO Technologies

-0.15

Correlation Coefficient

Cepton  FARO Technologies

Good diversification

The 3 months correlation between Cepton and FARO is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Cepton Inc and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies and Cepton 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 Cepton Inc 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 Cepton i.e., Cepton and FARO Technologies go up and down completely randomly.

Pair Corralation between Cepton and FARO Technologies

Assuming the 90 days horizon Cepton Inc is expected to generate 4.14 times more return on investment than FARO Technologies. However, Cepton is 4.14 times more volatile than FARO Technologies. It trades about 0.02 of its potential returns per unit of risk. FARO Technologies is currently generating about -0.01 per unit of risk. If you would invest  14.00  in Cepton Inc on January 31, 2024 and sell it today you would lose (13.06) from holding Cepton Inc or give up 93.29% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	75.68%
Values	Daily Returns

Cepton Inc  vs.  FARO Technologies

Cepton Inc

Risk-Adjusted Performance

7 of 100

OK

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

FARO Technologies

Risk-Adjusted Performance

0 of 100

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 unsteady performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Cepton and FARO Technologies

The main advantage of trading using opposite Cepton and FARO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cepton 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 Cepton Inc 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.