Correlation Between First Advantage and TOMI Environmental

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

By analyzing existing cross correlation between First Advantage Corp and TOMI Environmental Solutions, you can compare the effects of market volatilities on First Advantage and TOMI Environmental 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 First Advantage with a short position of TOMI Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of First Advantage and TOMI Environmental.

Diversification Opportunities for First Advantage and TOMI Environmental

-0.49

Correlation Coefficient

First Advantage  TOMI Environmental

Very good diversification

The 3 months correlation between First and TOMI is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding First Advantage Corp and TOMI Environmental Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TOMI Environmental and First Advantage 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 First Advantage Corp are associated (or correlated) with TOMI Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TOMI Environmental has no effect on the direction of First Advantage i.e., First Advantage and TOMI Environmental go up and down completely randomly.

Pair Corralation between First Advantage and TOMI Environmental

Allowing for the 90-day total investment horizon First Advantage Corp is expected to under-perform the TOMI Environmental. But the stock apears to be less risky and, when comparing its historical volatility, First Advantage Corp is 1.94 times less risky than TOMI Environmental. The stock trades about -0.04 of its potential returns per unit of risk. The TOMI Environmental Solutions is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  84.00  in TOMI Environmental Solutions on September 23, 2024 and sell it today you would lose (6.00) from holding TOMI Environmental Solutions or give up 7.14% of portfolio value over 90 days.

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

First Advantage Corp  vs.  TOMI Environmental Solutions

First Advantage Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Advantage Corp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, First Advantage is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

TOMI Environmental

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days TOMI Environmental Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong primary indicators, TOMI Environmental is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Advantage and TOMI Environmental

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

The idea behind First Advantage Corp and TOMI Environmental Solutions 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.