Correlation Between Toro and FormFactor

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

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

Diversification Opportunities for Toro and FormFactor

-0.3

Correlation Coefficient

Toro  FormFactor

Very good diversification

The 3 months correlation between Toro and FormFactor is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Toro Co and FormFactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FormFactor and Toro 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 Toro Co 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 Toro i.e., Toro and FormFactor go up and down completely randomly.

Pair Corralation between Toro and FormFactor

Considering the 90-day investment horizon Toro Co is expected to under-perform the FormFactor. But the stock apears to be less risky and, when comparing its historical volatility, Toro Co is 2.04 times less risky than FormFactor. The stock trades about -0.32 of its potential returns per unit of risk. The FormFactor is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  4,289  in FormFactor on October 8, 2024 and sell it today you would earn a total of  157.00  from holding FormFactor or generate 3.66% return on investment over 90 days.

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

Toro Co  vs.  FormFactor

Toro

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Toro Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Toro is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

FormFactor

Risk-Adjusted Performance

0 of 100

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 very healthy basic indicators, FormFactor is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Toro and FormFactor

The main advantage of trading using opposite Toro and FormFactor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toro 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 Toro Co 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.