Correlation Between AEGEAN AIRLINES and FARO Technologies

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

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

Diversification Opportunities for AEGEAN AIRLINES and FARO Technologies

0.48

Correlation Coefficient

AEGEAN AIRLINES  FARO Technologies

Very weak diversification

The 3 months correlation between AEGEAN and FARO is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding AEGEAN AIRLINES and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies and AEGEAN AIRLINES 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 AEGEAN AIRLINES 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 AEGEAN AIRLINES i.e., AEGEAN AIRLINES and FARO Technologies go up and down completely randomly.

Pair Corralation between AEGEAN AIRLINES and FARO Technologies

Assuming the 90 days trading horizon AEGEAN AIRLINES is expected to under-perform the FARO Technologies. But the stock apears to be less risky and, when comparing its historical volatility, AEGEAN AIRLINES is 2.5 times less risky than FARO Technologies. The stock trades about -0.01 of its potential returns per unit of risk. The FARO Technologies is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,060  in FARO Technologies on December 11, 2024 and sell it today you would earn a total of  680.00  from holding FARO Technologies or generate 33.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.63%
Values	Daily Returns

AEGEAN AIRLINES  vs.  FARO Technologies

AEGEAN AIRLINES

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in AEGEAN AIRLINES are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, AEGEAN AIRLINES may actually be approaching a critical reversion point that can send shares even higher in April 2025.

FARO Technologies

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FARO Technologies are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, FARO Technologies may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with AEGEAN AIRLINES and FARO Technologies

The main advantage of trading using opposite AEGEAN AIRLINES and FARO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if AEGEAN AIRLINES 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 AEGEAN AIRLINES 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.