Correlation Between Fabrinet and OSI Systems

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

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

Diversification Opportunities for Fabrinet and OSI Systems

0.05

Correlation Coefficient

Fabrinet  OSI Systems

Significant diversification

The 3 months correlation between Fabrinet and OSI is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and OSI Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OSI 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 OSI Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OSI Systems has no effect on the direction of Fabrinet i.e., Fabrinet and OSI Systems go up and down completely randomly.

Pair Corralation between Fabrinet and OSI Systems

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 2.35 times less return on investment than OSI Systems. In addition to that, Fabrinet is 1.7 times more volatile than OSI Systems. It trades about 0.05 of its total potential returns per unit of risk. OSI Systems is currently generating about 0.18 per unit of volatility. If you would invest  14,173  in OSI Systems on August 31, 2024 and sell it today you would earn a total of  3,278  from holding OSI Systems or generate 23.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Fabrinet  vs.  OSI Systems

Fabrinet

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Fabrinet are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Fabrinet may actually be approaching a critical reversion point that can send shares even higher in December 2024.

OSI Systems

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in OSI Systems are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating forward indicators, OSI Systems unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Fabrinet and OSI Systems

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

The idea behind Fabrinet and OSI 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.