Correlation Between PT Bank and FARO Technologies

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

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

Diversification Opportunities for PT Bank and FARO Technologies

-0.82

Correlation Coefficient

PT Bank  FARO Technologies

Pay attention - limited upside

The 3 months correlation between PQ9 and FARO is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding PT Bank Mandiri and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies and PT Bank 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 PT Bank Mandiri 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 PT Bank i.e., PT Bank and FARO Technologies go up and down completely randomly.

Pair Corralation between PT Bank and FARO Technologies

Assuming the 90 days horizon PT Bank Mandiri is expected to under-perform the FARO Technologies. But the stock apears to be less risky and, when comparing its historical volatility, PT Bank Mandiri is 1.17 times less risky than FARO Technologies. The stock trades about -0.03 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  1,560  in FARO Technologies on September 12, 2024 and sell it today you would earn a total of  960.00  from holding FARO Technologies or generate 61.54% return on investment over 90 days.

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

PT Bank Mandiri  vs.  FARO Technologies

PT Bank Mandiri

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PT Bank Mandiri has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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.

Pair Trading with PT Bank and FARO Technologies

The main advantage of trading using opposite PT Bank and FARO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if PT Bank 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 PT Bank Mandiri 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.

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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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.