Correlation Between FARO Technologies and DiamondRock Hospitality
Can any of the company-specific risk be diversified away by investing in both FARO Technologies and DiamondRock Hospitality 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 DiamondRock Hospitality into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FARO Technologies and DiamondRock Hospitality, you can compare the effects of market volatilities on FARO Technologies and DiamondRock Hospitality 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 DiamondRock Hospitality. Check out your portfolio center. Please also check ongoing floating volatility patterns of FARO Technologies and DiamondRock Hospitality.
Diversification Opportunities for FARO Technologies and DiamondRock Hospitality
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between FARO and DiamondRock is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding FARO Technologies and DiamondRock Hospitality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DiamondRock Hospitality 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 DiamondRock Hospitality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DiamondRock Hospitality has no effect on the direction of FARO Technologies i.e., FARO Technologies and DiamondRock Hospitality go up and down completely randomly.
Pair Corralation between FARO Technologies and DiamondRock Hospitality
Assuming the 90 days horizon FARO Technologies is expected to generate 1.29 times more return on investment than DiamondRock Hospitality. However, FARO Technologies is 1.29 times more volatile than DiamondRock Hospitality. It trades about 0.1 of its potential returns per unit of risk. DiamondRock Hospitality is currently generating about 0.05 per unit of risk. If you would invest 1,500 in FARO Technologies on September 23, 2024 and sell it today you would earn a total of 940.00 from holding FARO Technologies or generate 62.67% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
FARO Technologies vs. DiamondRock Hospitality
Performance |
Timeline |
FARO Technologies |
DiamondRock Hospitality |
FARO Technologies and DiamondRock Hospitality Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with FARO Technologies and DiamondRock Hospitality
The main advantage of trading using opposite FARO Technologies and DiamondRock Hospitality positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FARO Technologies position performs unexpectedly, DiamondRock Hospitality 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 DiamondRock Hospitality will offset losses from the drop in DiamondRock Hospitality's long position.FARO Technologies vs. Verizon Communications | FARO Technologies vs. COMBA TELECOM SYST | FARO Technologies vs. Diamyd Medical AB | FARO Technologies vs. CompuGroup Medical SE |
DiamondRock Hospitality vs. EBRO FOODS | DiamondRock Hospitality vs. alstria office REIT AG | DiamondRock Hospitality vs. Thai Beverage Public | DiamondRock Hospitality vs. CENTURIA OFFICE REIT |
Check out your portfolio center.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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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