Correlation Between Hon Hai and Fabrinet

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

By analyzing existing cross correlation between Hon Hai Precision and Fabrinet, you can compare the effects of market volatilities on Hon Hai and Fabrinet 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 Hon Hai with a short position of Fabrinet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Fabrinet.

Diversification Opportunities for Hon Hai and Fabrinet

0.45

Correlation Coefficient

Hon Hai  Fabrinet

Very weak diversification

The 3 months correlation between Hon and Fabrinet is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and Hon Hai 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 Hon Hai Precision are associated (or correlated) with Fabrinet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fabrinet has no effect on the direction of Hon Hai i.e., Hon Hai and Fabrinet go up and down completely randomly.

Pair Corralation between Hon Hai and Fabrinet

Assuming the 90 days horizon Hon Hai Precision is expected to under-perform the Fabrinet. But the pink sheet apears to be less risky and, when comparing its historical volatility, Hon Hai Precision is 1.97 times less risky than Fabrinet. The pink sheet trades about -0.1 of its potential returns per unit of risk. The Fabrinet is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  23,398  in Fabrinet on December 2, 2024 and sell it today you would lose (3,393) from holding Fabrinet or give up 14.5% of portfolio value over 90 days.

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

Hon Hai Precision  vs.  Fabrinet

Hon Hai Precision

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hon Hai Precision has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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.

Pair Trading with Hon Hai and Fabrinet

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

The idea behind Hon Hai Precision and Fabrinet 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.