Correlation Between FormFactor and Teradyne

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

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

Diversification Opportunities for FormFactor and Teradyne

0.81

Correlation Coefficient

FormFactor  Teradyne

Very poor diversification

The 3 months correlation between FormFactor and Teradyne is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding FormFactor and Teradyne in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teradyne 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 Teradyne. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teradyne has no effect on the direction of FormFactor i.e., FormFactor and Teradyne go up and down completely randomly.

Pair Corralation between FormFactor and Teradyne

Given the investment horizon of 90 days FormFactor is expected to under-perform the Teradyne. In addition to that, FormFactor is 1.99 times more volatile than Teradyne. It trades about -0.07 of its total potential returns per unit of risk. Teradyne is currently generating about -0.06 per unit of volatility. If you would invest  11,175  in Teradyne on August 26, 2024 and sell it today you would lose (354.00) from holding Teradyne or give up 3.17% of portfolio value over 90 days.

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

FormFactor  vs.  Teradyne

FormFactor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FormFactor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in December 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Teradyne

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with FormFactor and Teradyne

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

The idea behind FormFactor and Teradyne 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.