Correlation Between Fabrinet and Kimball Electronics

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

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

Diversification Opportunities for Fabrinet and Kimball Electronics

0.61

Correlation Coefficient

Fabrinet  Kimball Electronics

Poor diversification

The 3 months correlation between Fabrinet and Kimball is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and Kimball Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Kimball Electronics 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 Kimball Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Kimball Electronics has no effect on the direction of Fabrinet i.e., Fabrinet and Kimball Electronics go up and down completely randomly.

Pair Corralation between Fabrinet and Kimball Electronics

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 2.53 times more return on investment than Kimball Electronics. However, Fabrinet is 2.53 times more volatile than Kimball Electronics. It trades about -0.01 of its potential returns per unit of risk. Kimball Electronics is currently generating about -0.09 per unit of risk. If you would invest  21,476  in Fabrinet on December 28, 2024 and sell it today you would lose (1,862) from holding Fabrinet or give up 8.67% of portfolio value over 90 days.

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

Fabrinet  vs.  Kimball Electronics

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.

Kimball Electronics

Risk-Adjusted Performance

Very Weak

Over the last 90 days Kimball Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's technical and fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Fabrinet and Kimball Electronics

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

The idea behind Fabrinet and Kimball Electronics 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.