Correlation Between FARO Technologies and Honda

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

Diversification Opportunities for FARO Technologies and Honda

-0.17
  Correlation Coefficient

Good diversification

The 3 months correlation between FARO and Honda is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding FARO Technologies and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and FARO Technologies 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 FARO Technologies are associated (or correlated) with Honda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honda Motor has no effect on the direction of FARO Technologies i.e., FARO Technologies and Honda go up and down completely randomly.

Pair Corralation between FARO Technologies and Honda

Given the investment horizon of 90 days FARO Technologies is expected to under-perform the Honda. In addition to that, FARO Technologies is 2.6 times more volatile than Honda Motor Co. It trades about -0.02 of its total potential returns per unit of risk. Honda Motor Co is currently generating about 0.06 per unit of volatility. If you would invest  2,483  in Honda Motor Co on December 30, 2023 and sell it today you would earn a total of  1,240  from holding Honda Motor Co or generate 49.94% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

FARO Technologies  vs.  Honda Motor Co

 Performance 
       Timeline  
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 newest stock price disarray, may contribute to short-term losses for the investors.
Honda Motor 

Risk-Adjusted Performance

20 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Honda Motor Co are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of rather abnormal primary indicators, Honda exhibited solid returns over the last few months and may actually be approaching a breakup point.

FARO Technologies and Honda Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with FARO Technologies and Honda

The main advantage of trading using opposite FARO Technologies and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FARO Technologies position performs unexpectedly, Honda 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 Honda will offset losses from the drop in Honda's long position.
The idea behind FARO Technologies and Honda Motor Co 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 CEOs Directory module to screen CEOs from public companies around the world.

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