Correlation Between FARO Technologies and BBB Foods

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

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

Diversification Opportunities for FARO Technologies and BBB Foods

-0.11

Correlation Coefficient

FARO Technologies  BBB Foods

Good diversification

The 3 months correlation between FARO and BBB is -0.11. Overlapping area represents the amount of risk that can be diversified away by holding FARO Technologies and BBB Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBB Foods 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 BBB Foods. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBB Foods has no effect on the direction of FARO Technologies i.e., FARO Technologies and BBB Foods go up and down completely randomly.

Pair Corralation between FARO Technologies and BBB Foods

Given the investment horizon of 90 days FARO Technologies is expected to generate 1.72 times more return on investment than BBB Foods. However, FARO Technologies is 1.72 times more volatile than BBB Foods. It trades about 0.06 of its potential returns per unit of risk. BBB Foods is currently generating about -0.06 per unit of risk. If you would invest  2,587  in FARO Technologies on December 26, 2024 and sell it today you would earn a total of  263.00  from holding FARO Technologies or generate 10.17% 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.  BBB Foods

FARO Technologies

Risk-Adjusted Performance

Insignificant

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.

BBB Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days BBB Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with FARO Technologies and BBB Foods

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

The idea behind FARO Technologies and BBB Foods 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.