Correlation Between Fabrinet and Key Tronic

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

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

Diversification Opportunities for Fabrinet and Key Tronic

0.61

Correlation Coefficient

Fabrinet  Key Tronic

Poor diversification

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

Pair Corralation between Fabrinet and Key Tronic

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 1.34 times more return on investment than Key Tronic. However, Fabrinet is 1.34 times more volatile than Key Tronic. It trades about 0.02 of its potential returns per unit of risk. Key Tronic is currently generating about -0.18 per unit of risk. If you would invest  22,274  in Fabrinet on December 19, 2024 and sell it today you would earn a total of  12.00  from holding Fabrinet or generate 0.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Fabrinet  vs.  Key Tronic

Fabrinet

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fabrinet are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Fabrinet may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Key Tronic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Key Tronic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's fundamental indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with Fabrinet and Key Tronic

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

The idea behind Fabrinet and Key Tronic 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.