Correlation Between Desktop Metal and Fabrinet

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

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

Diversification Opportunities for Desktop Metal and Fabrinet

0.36

Correlation Coefficient

Desktop Metal  Fabrinet

Weak diversification

The 3 months correlation between Desktop and Fabrinet is 0.36. Overlapping area represents the amount of risk that can be diversified away by holding Desktop Metal and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and Desktop Metal 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 Desktop Metal 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 Desktop Metal i.e., Desktop Metal and Fabrinet go up and down completely randomly.

Pair Corralation between Desktop Metal and Fabrinet

Allowing for the 90-day total investment horizon Desktop Metal is expected to under-perform the Fabrinet. In addition to that, Desktop Metal is 1.15 times more volatile than Fabrinet. It trades about -0.14 of its total potential returns per unit of risk. Fabrinet is currently generating about -0.02 per unit of volatility. If you would invest  24,253  in Fabrinet on September 2, 2024 and sell it today you would lose (795.00) from holding Fabrinet or give up 3.28% of portfolio value over 90 days.

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

Desktop Metal  vs.  Fabrinet

Desktop Metal

Risk-Adjusted Performance

0 of 100

Very Weak

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

Fabrinet

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fabrinet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Fabrinet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Desktop Metal and Fabrinet

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

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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 Global Correlations module to find global opportunities by holding instruments from different markets.