Correlation Between FARO Technologies and Coherent

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

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

Diversification Opportunities for FARO Technologies and Coherent

0.66

Correlation Coefficient

FARO Technologies  Coherent

Poor diversification

The 3 months correlation between FARO and Coherent is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding FARO Technologies and Coherent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Coherent 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 Coherent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Coherent has no effect on the direction of FARO Technologies i.e., FARO Technologies and Coherent go up and down completely randomly.

Pair Corralation between FARO Technologies and Coherent

Given the investment horizon of 90 days FARO Technologies is expected to generate 4.17 times less return on investment than Coherent. In addition to that, FARO Technologies is 1.06 times more volatile than Coherent. It trades about 0.02 of its total potential returns per unit of risk. Coherent is currently generating about 0.08 per unit of volatility. If you would invest  3,347  in Coherent on September 12, 2024 and sell it today you would earn a total of  6,674  from holding Coherent or generate 199.4% return on investment over 90 days.

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

FARO Technologies  vs.  Coherent

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. 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.

Coherent

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Coherent are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent technical indicators, Coherent reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FARO Technologies and Coherent

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

The idea behind FARO Technologies and Coherent 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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.