Correlation Between Fabrinet and ADC Therapeutics

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

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

Diversification Opportunities for Fabrinet and ADC Therapeutics

0.46

Correlation Coefficient

Fabrinet  ADC Therapeutics

Very weak diversification

The 3 months correlation between Fabrinet and ADC is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and ADC Therapeutics SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADC Therapeutics and Fabrinet 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 Fabrinet are associated (or correlated) with ADC Therapeutics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADC Therapeutics has no effect on the direction of Fabrinet i.e., Fabrinet and ADC Therapeutics go up and down completely randomly.

Pair Corralation between Fabrinet and ADC Therapeutics

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 0.3 times more return on investment than ADC Therapeutics. However, Fabrinet is 3.33 times less risky than ADC Therapeutics. It trades about -0.02 of its potential returns per unit of risk. ADC Therapeutics SA is currently generating about -0.01 per unit of risk. If you would invest  23,753  in Fabrinet on September 26, 2024 and sell it today you would lose (1,629) from holding Fabrinet or give up 6.86% of portfolio value over 90 days.

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

Fabrinet  vs.  ADC Therapeutics SA

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.

ADC Therapeutics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ADC Therapeutics SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's fundamental indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Fabrinet and ADC Therapeutics

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

The idea behind Fabrinet and ADC Therapeutics SA 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.