Correlation Between Fabrinet and NETGEAR

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

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

Diversification Opportunities for Fabrinet and NETGEAR

-0.21

Correlation Coefficient

Fabrinet  NETGEAR

Very good diversification

The 3 months correlation between Fabrinet and NETGEAR is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and NETGEAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NETGEAR 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 NETGEAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NETGEAR has no effect on the direction of Fabrinet i.e., Fabrinet and NETGEAR go up and down completely randomly.

Pair Corralation between Fabrinet and NETGEAR

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 2.03 times less return on investment than NETGEAR. In addition to that, Fabrinet is 1.02 times more volatile than NETGEAR. It trades about 0.05 of its total potential returns per unit of risk. NETGEAR is currently generating about 0.1 per unit of volatility. If you would invest  1,297  in NETGEAR on September 23, 2024 and sell it today you would earn a total of  1,503  from holding NETGEAR or generate 115.88% return on investment over 90 days.

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

Fabrinet  vs.  NETGEAR

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.

NETGEAR

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in NETGEAR are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fabrinet and NETGEAR

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

The idea behind Fabrinet and NETGEAR 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.