Correlation Between FARO Technologies and SBM OFFSHORE

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

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

Diversification Opportunities for FARO Technologies and SBM OFFSHORE

0.46

Correlation Coefficient

FARO Technologies  SBM OFFSHORE

Very weak diversification

The 3 months correlation between FARO and SBM is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding FARO Technologies and SBM OFFSHORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBM OFFSHORE 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 SBM OFFSHORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBM OFFSHORE has no effect on the direction of FARO Technologies i.e., FARO Technologies and SBM OFFSHORE go up and down completely randomly.

Pair Corralation between FARO Technologies and SBM OFFSHORE

Assuming the 90 days horizon FARO Technologies is expected to generate 1.59 times more return on investment than SBM OFFSHORE. However, FARO Technologies is 1.59 times more volatile than SBM OFFSHORE. It trades about 0.11 of its potential returns per unit of risk. SBM OFFSHORE is currently generating about -0.24 per unit of risk. If you would invest  2,420  in FARO Technologies on September 21, 2024 and sell it today you would earn a total of  120.00  from holding FARO Technologies or generate 4.96% return on investment over 90 days.

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

FARO Technologies  vs.  SBM OFFSHORE

FARO Technologies

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FARO Technologies are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, FARO Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

SBM OFFSHORE

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SBM OFFSHORE are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, SBM OFFSHORE is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FARO Technologies and SBM OFFSHORE

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

The idea behind FARO Technologies and SBM OFFSHORE 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.