Correlation Between American Clean and FormFactor

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

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

Diversification Opportunities for American Clean and FormFactor

0.68

Correlation Coefficient

American Clean  FormFactor

Poor diversification

The 3 months correlation between American and FormFactor is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding American Clean Resources and FormFactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FormFactor and American Clean 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 American Clean Resources 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 American Clean i.e., American Clean and FormFactor go up and down completely randomly.

Pair Corralation between American Clean and FormFactor

Given the investment horizon of 90 days American Clean Resources is expected to under-perform the FormFactor. In addition to that, American Clean is 1.13 times more volatile than FormFactor. It trades about -0.35 of its total potential returns per unit of risk. FormFactor is currently generating about -0.05 per unit of volatility. If you would invest  4,627  in FormFactor on January 29, 2024 and sell it today you would lose (152.00) from holding FormFactor or give up 3.29% of portfolio value over 90 days.

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

American Clean Resources  vs.  FormFactor

American Clean Resources

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in American Clean Resources are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, American Clean reported solid returns over the last few months and may actually be approaching a breakup point.

FormFactor

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in FormFactor are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, FormFactor may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with American Clean and FormFactor

The main advantage of trading using opposite American Clean and FormFactor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Clean 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 American Clean Resources 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.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.