Correlation Between Fabrinet and NLIGHT

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

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

Diversification Opportunities for Fabrinet and NLIGHT

0.41

Correlation Coefficient

Fabrinet  NLIGHT

Very weak diversification

The 3 months correlation between Fabrinet and NLIGHT is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and nLIGHT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on nLIGHT 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 NLIGHT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of nLIGHT Inc has no effect on the direction of Fabrinet i.e., Fabrinet and NLIGHT go up and down completely randomly.

Pair Corralation between Fabrinet and NLIGHT

Allowing for the 90-day total investment horizon Fabrinet is expected to under-perform the NLIGHT. In addition to that, Fabrinet is 1.29 times more volatile than nLIGHT Inc. It trades about -0.03 of its total potential returns per unit of risk. nLIGHT Inc is currently generating about -0.04 per unit of volatility. If you would invest  1,086  in nLIGHT Inc on November 28, 2024 and sell it today you would lose (110.00) from holding nLIGHT Inc or give up 10.13% of portfolio value over 90 days.

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

Fabrinet  vs.  nLIGHT Inc

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 latest uncertain performance, the Stock's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

nLIGHT Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days nLIGHT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Fabrinet and NLIGHT

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

The idea behind Fabrinet and nLIGHT 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.