Correlation Between Nextplat Corp and FARO Technologies

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

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

Diversification Opportunities for Nextplat Corp and FARO Technologies

0.62

Correlation Coefficient

Nextplat Corp  FARO Technologies

Poor diversification

The 3 months correlation between Nextplat and FARO is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Nextplat Corp and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies and Nextplat Corp 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 Nextplat Corp 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 Nextplat Corp i.e., Nextplat Corp and FARO Technologies go up and down completely randomly.

Pair Corralation between Nextplat Corp and FARO Technologies

Given the investment horizon of 90 days Nextplat Corp is expected to under-perform the FARO Technologies. In addition to that, Nextplat Corp is 4.97 times more volatile than FARO Technologies. It trades about -0.1 of its total potential returns per unit of risk. FARO Technologies is currently generating about -0.35 per unit of volatility. If you would invest  2,151  in FARO Technologies on January 28, 2024 and sell it today you would lose (259.00) from holding FARO Technologies or give up 12.04% of portfolio value over 90 days.

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

Nextplat Corp  vs.  FARO Technologies

Nextplat Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextplat Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in May 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

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 Nextplat Corp and FARO Technologies

The main advantage of trading using opposite Nextplat Corp and FARO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nextplat Corp 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 Nextplat Corp 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.