Correlation Between FARO Technologies and Electro Sensors

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

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

Diversification Opportunities for FARO Technologies and Electro Sensors

-0.19

Correlation Coefficient

FARO Technologies  Electro Sensors

Good diversification

The 3 months correlation between FARO and Electro is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding FARO Technologies and Electro Sensors in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Electro Sensors 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 Electro Sensors. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Electro Sensors has no effect on the direction of FARO Technologies i.e., FARO Technologies and Electro Sensors go up and down completely randomly.

Pair Corralation between FARO Technologies and Electro Sensors

Given the investment horizon of 90 days FARO Technologies is expected to generate 1.68 times more return on investment than Electro Sensors. However, FARO Technologies is 1.68 times more volatile than Electro Sensors. It trades about 0.05 of its potential returns per unit of risk. Electro Sensors is currently generating about -0.12 per unit of risk. If you would invest  2,535  in FARO Technologies on December 28, 2024 and sell it today you would earn a total of  213.50  from holding FARO Technologies or generate 8.42% 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.  Electro Sensors

FARO Technologies

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FARO Technologies are ranked lower than 4 (%) 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.

Electro Sensors

Risk-Adjusted Performance

Very Weak

Over the last 90 days Electro Sensors has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with FARO Technologies and Electro Sensors

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

The idea behind FARO Technologies and Electro Sensors 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.