Correlation Between Townsquare Media and FARO Technologies

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

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

Diversification Opportunities for Townsquare Media and FARO Technologies

0.18

Correlation Coefficient

Townsquare Media  FARO Technologies

Average diversification

The 3 months correlation between Townsquare and FARO is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Townsquare Media and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies and Townsquare Media 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 Townsquare Media 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 Townsquare Media i.e., Townsquare Media and FARO Technologies go up and down completely randomly.

Pair Corralation between Townsquare Media and FARO Technologies

Assuming the 90 days horizon Townsquare Media is expected to generate 18.26 times less return on investment than FARO Technologies. But when comparing it to its historical volatility, Townsquare Media is 1.44 times less risky than FARO Technologies. It trades about 0.0 of its potential returns per unit of risk. FARO Technologies is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,420  in FARO Technologies on October 4, 2024 and sell it today you would earn a total of  1,020  from holding FARO Technologies or generate 71.83% return on investment over 90 days.

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

Townsquare Media  vs.  FARO Technologies

Townsquare Media

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Townsquare Media has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Townsquare Media is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

FARO Technologies

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FARO Technologies are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FARO Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Townsquare Media and FARO Technologies

The main advantage of trading using opposite Townsquare Media and FARO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Townsquare Media 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 Townsquare Media 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .