Correlation Between FARO Technologies and Badger Meter

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

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

Diversification Opportunities for FARO Technologies and Badger Meter

-0.18

Correlation Coefficient

FARO Technologies  Badger Meter

Good diversification

The 3 months correlation between FARO and Badger is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding FARO Technologies and Badger Meter in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Badger Meter and FARO Technologies 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 FARO Technologies are associated (or correlated) with Badger Meter. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Badger Meter has no effect on the direction of FARO Technologies i.e., FARO Technologies and Badger Meter go up and down completely randomly.

Pair Corralation between FARO Technologies and Badger Meter

Given the investment horizon of 90 days FARO Technologies is expected to generate 2.83 times more return on investment than Badger Meter. However, FARO Technologies is 2.83 times more volatile than Badger Meter. It trades about 0.07 of its potential returns per unit of risk. Badger Meter is currently generating about -0.11 per unit of risk. If you would invest  2,563  in FARO Technologies on December 19, 2024 and sell it today you would earn a total of  309.00  from holding FARO Technologies or generate 12.06% return on investment over 90 days.

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

FARO Technologies  vs.  Badger Meter

FARO Technologies

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FARO Technologies are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, FARO Technologies displayed solid returns over the last few months and may actually be approaching a breakup point.

Badger Meter

Risk-Adjusted Performance

Very Weak

Over the last 90 days Badger Meter has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's primary indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with FARO Technologies and Badger Meter

The main advantage of trading using opposite FARO Technologies and Badger Meter positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FARO Technologies position performs unexpectedly, Badger Meter 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 Badger Meter will offset losses from the drop in Badger Meter's long position.

The idea behind FARO Technologies and Badger Meter 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.