Correlation Between Infrared Cameras and FARO Technologies

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

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

Diversification Opportunities for Infrared Cameras and FARO Technologies

-0.21

Correlation Coefficient

Infrared Cameras  FARO Technologies

Very good diversification

The 3 months correlation between Infrared and FARO is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Infrared Cameras Holdings and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies and Infrared Cameras 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 Infrared Cameras Holdings 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 Infrared Cameras i.e., Infrared Cameras and FARO Technologies go up and down completely randomly.

Pair Corralation between Infrared Cameras and FARO Technologies

Given the investment horizon of 90 days Infrared Cameras Holdings is expected to generate 4.85 times more return on investment than FARO Technologies. However, Infrared Cameras is 4.85 times more volatile than FARO Technologies. It trades about 0.14 of its potential returns per unit of risk. FARO Technologies is currently generating about -0.33 per unit of risk. If you would invest  228.00  in Infrared Cameras Holdings on January 30, 2024 and sell it today you would earn a total of  45.00  from holding Infrared Cameras Holdings or generate 19.74% return on investment over 90 days.

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

Infrared Cameras Holdings  vs.  FARO Technologies

Infrared Cameras Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Infrared Cameras Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Infrared Cameras demonstrated 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 Infrared Cameras and FARO Technologies

The main advantage of trading using opposite Infrared Cameras and FARO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Infrared Cameras 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 Infrared Cameras Holdings 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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.