Correlation Between ESCO Technologies and FARO Technologies

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

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

Diversification Opportunities for ESCO Technologies and FARO Technologies

0.92

Correlation Coefficient

ESCO Technologies  FARO Technologies

Almost no diversification

The 3 months correlation between ESCO and FARO is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding ESCO Technologies and FARO Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FARO Technologies and ESCO 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 ESCO Technologies 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 ESCO Technologies i.e., ESCO Technologies and FARO Technologies go up and down completely randomly.

Pair Corralation between ESCO Technologies and FARO Technologies

Considering the 90-day investment horizon ESCO Technologies is expected to generate 2.96 times less return on investment than FARO Technologies. But when comparing it to its historical volatility, ESCO Technologies is 3.54 times less risky than FARO Technologies. It trades about 0.32 of its potential returns per unit of risk. FARO Technologies is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,769  in FARO Technologies on September 2, 2024 and sell it today you would earn a total of  856.00  from holding FARO Technologies or generate 48.39% return on investment over 90 days.

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

ESCO Technologies  vs.  FARO Technologies

ESCO Technologies

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ESCO Technologies are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, ESCO Technologies exhibited solid returns over the last few months and may actually be approaching a breakup point.

FARO Technologies

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FARO Technologies are ranked lower than 11 (%) 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 ESCO Technologies and FARO Technologies

The main advantage of trading using opposite ESCO Technologies and FARO Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ESCO Technologies 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 ESCO Technologies 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..