Can any of the company-specific risk be diversified away by investing in both Revvity and Fonar 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 Revvity and Fonar into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Revvity and Fonar, you can compare the effects of market volatilities on Revvity and Fonar 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 Revvity with a short position of Fonar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Revvity and Fonar.
Diversification Opportunities for Revvity and Fonar
The 3 months correlation between Revvity and Fonar is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding Revvity and Fonar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fonar and Revvity 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 Revvity are associated (or correlated) with Fonar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fonar has no effect on the direction of Revvity i.e., Revvity and Fonar go up and down completely randomly.
Given the investment horizon of 90 days Revvity is expected to generate 0.35 times more return on investment than Fonar. However, Revvity is 2.84 times less risky than Fonar. It trades about 0.27 of its potential returns per unit of risk. Fonar is currently generating about -0.26 per unit of risk. If you would invest 10,282 in Revvity on March 6, 2024 and sell it today you would earn a total of 597.00 from holding Revvity or generate 5.81% return on investment over 90 days.
Compared to the overall equity markets, risk-adjusted returns on investments in Revvity are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Revvity is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Over the last 90 days Fonar has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in July 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.