Correlation Between FormFactor and Advanced Micro
Can any of the company-specific risk be diversified away by investing in both FormFactor and Advanced Micro 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 FormFactor and Advanced Micro into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FormFactor and Advanced Micro Devices, you can compare the effects of market volatilities on FormFactor and Advanced Micro 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 FormFactor with a short position of Advanced Micro. Check out your portfolio center. Please also check ongoing floating volatility patterns of FormFactor and Advanced Micro.
Diversification Opportunities for FormFactor and Advanced Micro
0.45 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between FormFactor and Advanced is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding FormFactor and Advanced Micro Devices in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Advanced Micro Devices and FormFactor 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 FormFactor are associated (or correlated) with Advanced Micro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Advanced Micro Devices has no effect on the direction of FormFactor i.e., FormFactor and Advanced Micro go up and down completely randomly.
Pair Corralation between FormFactor and Advanced Micro
Given the investment horizon of 90 days FormFactor is expected to generate 1.34 times less return on investment than Advanced Micro. But when comparing it to its historical volatility, FormFactor is 1.17 times less risky than Advanced Micro. It trades about 0.08 of its potential returns per unit of risk. Advanced Micro Devices is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 8,757 in Advanced Micro Devices on January 17, 2024 and sell it today you would earn a total of 7,275 from holding Advanced Micro Devices or generate 83.08% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
FormFactor vs. Advanced Micro Devices
Performance |
| Timeline |
| FormFactor |
| Advanced Micro Devices |
FormFactor and Advanced Micro Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FormFactor and Advanced Micro
The main advantage of trading using opposite FormFactor and Advanced Micro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FormFactor position performs unexpectedly, Advanced Micro 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 Advanced Micro will offset losses from the drop in Advanced Micro's long position.The idea behind FormFactor and Advanced Micro Devices 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.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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.
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