Correlation Between Fabrinet and NetScout Systems

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

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

Diversification Opportunities for Fabrinet and NetScout Systems

0.14

Correlation Coefficient

Fabrinet  NetScout Systems

Average diversification

The 3 months correlation between Fabrinet and NetScout is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and NetScout Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetScout Systems 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 NetScout Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetScout Systems has no effect on the direction of Fabrinet i.e., Fabrinet and NetScout Systems go up and down completely randomly.

Pair Corralation between Fabrinet and NetScout Systems

Allowing for the 90-day total investment horizon Fabrinet is expected to under-perform the NetScout Systems. In addition to that, Fabrinet is 1.39 times more volatile than NetScout Systems. It trades about -0.06 of its total potential returns per unit of risk. NetScout Systems is currently generating about -0.03 per unit of volatility. If you would invest  2,181  in NetScout Systems on September 23, 2024 and sell it today you would lose (32.00) from holding NetScout Systems or give up 1.47% of portfolio value over 90 days.

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

Fabrinet  vs.  NetScout Systems

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 recent stock price disarray, may contribute to short-term losses for the investors.

NetScout Systems

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in NetScout Systems are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, NetScout Systems is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Fabrinet and NetScout Systems

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

The idea behind Fabrinet and NetScout Systems 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.