Correlation Between Freshpet and FARO Technologies

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

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

Diversification Opportunities for Freshpet and FARO Technologies

0.19

Correlation Coefficient

Freshpet  FARO Technologies

Average diversification

The 3 months correlation between Freshpet and FARO is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Freshpet and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies and Freshpet 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 Freshpet 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 Freshpet i.e., Freshpet and FARO Technologies go up and down completely randomly.

Pair Corralation between Freshpet and FARO Technologies

Assuming the 90 days horizon Freshpet is expected to under-perform the FARO Technologies. In addition to that, Freshpet is 1.05 times more volatile than FARO Technologies. It trades about -0.19 of its total potential returns per unit of risk. FARO Technologies is currently generating about 0.05 per unit of volatility. If you would invest  2,420  in FARO Technologies on December 26, 2024 and sell it today you would earn a total of  180.00  from holding FARO Technologies or generate 7.44% return on investment over 90 days.

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

Freshpet  vs.  FARO Technologies

Freshpet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Freshpet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 unsteady basic indicators, FARO Technologies may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Freshpet and FARO Technologies

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