Correlation Between NLIGHT and FormFactor

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

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

Diversification Opportunities for NLIGHT and FormFactor

0.76

Correlation Coefficient

NLIGHT  FormFactor

Poor diversification

The 3 months correlation between NLIGHT and FormFactor is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding nLIGHT Inc and FormFactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FormFactor and NLIGHT 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 nLIGHT Inc are associated (or correlated) with FormFactor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FormFactor has no effect on the direction of NLIGHT i.e., NLIGHT and FormFactor go up and down completely randomly.

Pair Corralation between NLIGHT and FormFactor

Given the investment horizon of 90 days nLIGHT Inc is expected to generate 1.18 times more return on investment than FormFactor. However, NLIGHT is 1.18 times more volatile than FormFactor. It trades about -0.1 of its potential returns per unit of risk. FormFactor is currently generating about -0.23 per unit of risk. If you would invest  1,015  in nLIGHT Inc on December 30, 2024 and sell it today you would lose (220.00) from holding nLIGHT Inc or give up 21.67% of portfolio value over 90 days.

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

nLIGHT Inc  vs.  FormFactor

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 weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

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 April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with NLIGHT and FormFactor

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

The idea behind nLIGHT Inc and FormFactor 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.