Correlation Between FormFactor and NLIGHT

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

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

Diversification Opportunities for FormFactor and NLIGHT

0.04

Correlation Coefficient

FormFactor  NLIGHT

Significant diversification

The 3 months correlation between FormFactor and NLIGHT is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding FormFactor and nLIGHT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nLIGHT Inc and FormFactor 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 FormFactor are associated (or correlated) with NLIGHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nLIGHT Inc has no effect on the direction of FormFactor i.e., FormFactor and NLIGHT go up and down completely randomly.

Pair Corralation between FormFactor and NLIGHT

Given the investment horizon of 90 days FormFactor is expected to under-perform the NLIGHT. But the stock apears to be less risky and, when comparing its historical volatility, FormFactor is 1.04 times less risky than NLIGHT. The stock trades about -0.07 of its potential returns per unit of risk. The nLIGHT Inc is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  1,086  in nLIGHT Inc on November 29, 2024 and sell it today you would lose (110.00) from holding nLIGHT Inc or give up 10.13% of portfolio value over 90 days.

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

FormFactor  vs.  nLIGHT Inc

FormFactor

Risk-Adjusted Performance

Very Weak

Over the last 90 days FormFactor 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 very healthy which may send shares a bit higher in March 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

nLIGHT Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days nLIGHT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with FormFactor and NLIGHT

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

The idea behind FormFactor and nLIGHT Inc 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.