Correlation Between Lipocine and FARO Technologies

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

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

Diversification Opportunities for Lipocine and FARO Technologies

-0.68

Correlation Coefficient

Lipocine  FARO Technologies

Excellent diversification

The 3 months correlation between Lipocine and FARO is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Lipocine and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies and Lipocine 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 Lipocine are associated (or correlated) with FARO Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FARO Technologies has no effect on the direction of Lipocine i.e., Lipocine and FARO Technologies go up and down completely randomly.

Pair Corralation between Lipocine and FARO Technologies

Given the investment horizon of 90 days Lipocine is expected to under-perform the FARO Technologies. But the stock apears to be less risky and, when comparing its historical volatility, Lipocine is 1.17 times less risky than FARO Technologies. The stock trades about -0.06 of its potential returns per unit of risk. The FARO Technologies is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  1,852  in FARO Technologies on October 20, 2024 and sell it today you would earn a total of  1,232  from holding FARO Technologies or generate 66.52% return on investment over 90 days.

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

Lipocine  vs.  FARO Technologies

Lipocine

Risk-Adjusted Performance

0 of 100

Very Weak

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

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. In spite of very weak basic indicators, FARO Technologies displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Lipocine and FARO Technologies

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

The idea behind Lipocine and FARO Technologies 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.

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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.