Correlation Between SHIP HEALTHCARE and FARO Technologies

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

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

Diversification Opportunities for SHIP HEALTHCARE and FARO Technologies

-0.56

Correlation Coefficient

SHIP HEALTHCARE  FARO Technologies

Excellent diversification

The 3 months correlation between SHIP and FARO is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding SHIP HEALTHCARE HLDGINC and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies and SHIP HEALTHCARE 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 SHIP HEALTHCARE HLDGINC 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 SHIP HEALTHCARE i.e., SHIP HEALTHCARE and FARO Technologies go up and down completely randomly.

Pair Corralation between SHIP HEALTHCARE and FARO Technologies

Assuming the 90 days horizon SHIP HEALTHCARE is expected to generate 12.08 times less return on investment than FARO Technologies. But when comparing it to its historical volatility, SHIP HEALTHCARE HLDGINC is 3.25 times less risky than FARO Technologies. It trades about 0.05 of its potential returns per unit of risk. FARO Technologies is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,560  in FARO Technologies on September 12, 2024 and sell it today you would earn a total of  960.00  from holding FARO Technologies or generate 61.54% return on investment over 90 days.

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

SHIP HEALTHCARE HLDGINC  vs.  FARO Technologies

SHIP HEALTHCARE HLDGINC

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in SHIP HEALTHCARE HLDGINC are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, SHIP HEALTHCARE 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

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FARO Technologies are ranked lower than 13 (%) 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 SHIP HEALTHCARE and FARO Technologies

The main advantage of trading using opposite SHIP HEALTHCARE and FARO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SHIP HEALTHCARE 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 SHIP HEALTHCARE HLDGINC 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.