Correlation Between FARO Technologies and Cummins
Can any of the company-specific risk be diversified away by investing in both FARO Technologies and Cummins 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 Cummins into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FARO Technologies and Cummins, you can compare the effects of market volatilities on FARO Technologies and Cummins 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 Cummins. Check out your portfolio center. Please also check ongoing floating volatility patterns of FARO Technologies and Cummins.
Diversification Opportunities for FARO Technologies and Cummins
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between FARO and Cummins is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding FARO Technologies and Cummins in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cummins 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 Cummins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cummins has no effect on the direction of FARO Technologies i.e., FARO Technologies and Cummins go up and down completely randomly.
Pair Corralation between FARO Technologies and Cummins
Assuming the 90 days horizon FARO Technologies is expected to generate 3.67 times more return on investment than Cummins. However, FARO Technologies is 3.67 times more volatile than Cummins. It trades about 0.17 of its potential returns per unit of risk. Cummins is currently generating about 0.34 per unit of risk. If you would invest 1,550 in FARO Technologies on September 5, 2024 and sell it today you would earn a total of 970.00 from holding FARO Technologies or generate 62.58% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
FARO Technologies vs. Cummins
Performance |
| Timeline |
| FARO Technologies |
| Cummins |
FARO Technologies and Cummins Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FARO Technologies and Cummins
The main advantage of trading using opposite FARO Technologies and Cummins positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FARO Technologies position performs unexpectedly, Cummins 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 Cummins will offset losses from the drop in Cummins' long position.| FARO Technologies vs. Teledyne Technologies Incorporated | FARO Technologies vs. Trimble | FARO Technologies vs. MKS Instruments |
| Cummins vs. NetSol Technologies | Cummins vs. Digilife Technologies Limited | Cummins vs. FARO Technologies | Cummins vs. THORNEY TECHS LTD |
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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.
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