Correlation Between Extreme Networks and Fabrinet

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

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

Diversification Opportunities for Extreme Networks and Fabrinet

-0.37

Correlation Coefficient

Extreme Networks  Fabrinet

Very good diversification

The 3 months correlation between Extreme and Fabrinet is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Extreme Networks and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and Extreme Networks 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 Extreme Networks 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 Extreme Networks i.e., Extreme Networks and Fabrinet go up and down completely randomly.

Pair Corralation between Extreme Networks and Fabrinet

Given the investment horizon of 90 days Extreme Networks is expected to generate 0.67 times more return on investment than Fabrinet. However, Extreme Networks is 1.48 times less risky than Fabrinet. It trades about 0.02 of its potential returns per unit of risk. Fabrinet is currently generating about -0.11 per unit of risk. If you would invest  1,676  in Extreme Networks on October 9, 2024 and sell it today you would earn a total of  8.00  from holding Extreme Networks or generate 0.48% return on investment over 90 days.

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

Extreme Networks  vs.  Fabrinet

Extreme Networks

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Extreme Networks are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Extreme Networks may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Fabrinet

Risk-Adjusted Performance

0 of 100

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 newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Extreme Networks and Fabrinet

The main advantage of trading using opposite Extreme Networks and Fabrinet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Extreme Networks 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 Extreme Networks 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.