Correlation Between Alps Electric and Fabrinet

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

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

Diversification Opportunities for Alps Electric and Fabrinet

-0.44

Correlation Coefficient

Alps Electric  Fabrinet

Very good diversification

The 3 months correlation between Alps and Fabrinet is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Alps Electric Co and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and Alps Electric 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 Alps Electric Co are associated (or correlated) with Fabrinet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fabrinet has no effect on the direction of Alps Electric i.e., Alps Electric and Fabrinet go up and down completely randomly.

Pair Corralation between Alps Electric and Fabrinet

Assuming the 90 days horizon Alps Electric Co is expected to generate 0.45 times more return on investment than Fabrinet. However, Alps Electric Co is 2.24 times less risky than Fabrinet. It trades about 0.03 of its potential returns per unit of risk. Fabrinet is currently generating about 0.01 per unit of risk. If you would invest  2,046  in Alps Electric Co on December 28, 2024 and sell it today you would earn a total of  63.00  from holding Alps Electric Co or generate 3.08% return on investment over 90 days.

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

Alps Electric Co  vs.  Fabrinet

Alps Electric

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Alps Electric Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong essential indicators, Alps Electric is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Fabrinet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fabrinet has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Fabrinet is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Alps Electric and Fabrinet

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

The idea behind Alps Electric Co and Fabrinet 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.