Correlation Between Apple and X FAB

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

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

Diversification Opportunities for Apple and X FAB

-0.15

Correlation Coefficient

Apple  X FAB

Good diversification

The 3 months correlation between Apple and XFB is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Apple Inc and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon and Apple 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 Apple Inc are associated (or correlated) with X FAB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of Apple i.e., Apple and X FAB go up and down completely randomly.

Pair Corralation between Apple and X FAB

Assuming the 90 days trading horizon Apple is expected to generate 1.39 times less return on investment than X FAB. But when comparing it to its historical volatility, Apple Inc is 3.58 times less risky than X FAB. It trades about 0.59 of its potential returns per unit of risk. X FAB Silicon Foundries is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest  436.00  in X FAB Silicon Foundries on September 17, 2024 and sell it today you would earn a total of  61.00  from holding X FAB Silicon Foundries or generate 13.99% return on investment over 90 days.

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

Apple Inc  vs.  X FAB Silicon Foundries

Apple Inc

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Apple Inc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain fundamental indicators, Apple exhibited solid returns over the last few months and may actually be approaching a breakup point.

X FAB Silicon

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in X FAB Silicon Foundries are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental drivers, X FAB is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Apple and X FAB

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

The idea behind Apple Inc and X FAB Silicon Foundries 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.