Correlation Between Fabrinet and ADTRAN

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

By analyzing existing cross correlation between Fabrinet and ADTRAN Inc, you can compare the effects of market volatilities on Fabrinet and ADTRAN 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 ADTRAN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fabrinet and ADTRAN.

Diversification Opportunities for Fabrinet and ADTRAN

-0.33

Correlation Coefficient

Fabrinet  ADTRAN

Very good diversification

The 3 months correlation between Fabrinet and ADTRAN is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and ADTRAN Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ADTRAN Inc 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 ADTRAN. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ADTRAN Inc has no effect on the direction of Fabrinet i.e., Fabrinet and ADTRAN go up and down completely randomly.

Pair Corralation between Fabrinet and ADTRAN

Allowing for the 90-day total investment horizon Fabrinet is expected to under-perform the ADTRAN. But the stock apears to be less risky and, when comparing its historical volatility, Fabrinet is 1.0 times less risky than ADTRAN. The stock trades about -0.13 of its potential returns per unit of risk. The ADTRAN Inc is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  865.00  in ADTRAN Inc on October 1, 2024 and sell it today you would lose (44.00) from holding ADTRAN Inc or give up 5.09% of portfolio value over 90 days.

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

Fabrinet  vs.  ADTRAN Inc

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.

ADTRAN Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ADTRAN Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, ADTRAN displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fabrinet and ADTRAN

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

The idea behind Fabrinet and ADTRAN Inc 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .