Correlation Between FARO Technologies and Universal Entertainment

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

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

Diversification Opportunities for FARO Technologies and Universal Entertainment

0.55

Correlation Coefficient

FARO Technologies  Universal Entertainment

Very weak diversification

The 3 months correlation between FARO and Universal is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding FARO Technologies and Universal Entertainment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Universal Entertainment 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 Universal Entertainment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Universal Entertainment has no effect on the direction of FARO Technologies i.e., FARO Technologies and Universal Entertainment go up and down completely randomly.

Pair Corralation between FARO Technologies and Universal Entertainment

Assuming the 90 days horizon FARO Technologies is expected to generate 1.79 times more return on investment than Universal Entertainment. However, FARO Technologies is 1.79 times more volatile than Universal Entertainment. It trades about 0.0 of its potential returns per unit of risk. Universal Entertainment is currently generating about -0.14 per unit of risk. If you would invest  3,080  in FARO Technologies on December 2, 2024 and sell it today you would lose (60.00) from holding FARO Technologies or give up 1.95% of portfolio value over 90 days.

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

FARO Technologies  vs.  Universal Entertainment

FARO Technologies

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FARO Technologies are ranked lower than 7 (%) 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.

Universal Entertainment

Risk-Adjusted Performance

Very Weak

Over the last 90 days Universal Entertainment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Universal Entertainment is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with FARO Technologies and Universal Entertainment

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

The idea behind FARO Technologies and Universal Entertainment 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..