Correlation Between EMCORE and FormFactor

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

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

Diversification Opportunities for EMCORE and FormFactor

-0.69

Correlation Coefficient

EMCORE  FormFactor

Excellent diversification

The 3 months correlation between EMCORE and FormFactor is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding EMCORE and FormFactor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FormFactor and EMCORE 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 EMCORE 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 EMCORE i.e., EMCORE and FormFactor go up and down completely randomly.

Pair Corralation between EMCORE and FormFactor

Given the investment horizon of 90 days EMCORE is expected to under-perform the FormFactor. In addition to that, EMCORE is 1.66 times more volatile than FormFactor. It trades about -0.37 of its total potential returns per unit of risk. FormFactor is currently generating about 0.05 per unit of volatility. If you would invest  4,120  in FormFactor on January 19, 2024 and sell it today you would earn a total of  89.00  from holding FormFactor or generate 2.16% return on investment over 90 days.

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

EMCORE  vs.  FormFactor

EMCORE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EMCORE has generated negative risk-adjusted returns adding no value to investors with long positions. Even with abnormal performance in the last few months, the Stock's forward-looking signals remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

FormFactor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FormFactor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, FormFactor is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with EMCORE and FormFactor

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

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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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.