Correlation Between Littelfuse and Fabrinet

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

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

Diversification Opportunities for Littelfuse and Fabrinet

0.32

Correlation Coefficient

Littelfuse  Fabrinet

Weak diversification

The 3 months correlation between Littelfuse and Fabrinet is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Littelfuse and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and Littelfuse 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 Littelfuse 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 Littelfuse i.e., Littelfuse and Fabrinet go up and down completely randomly.

Pair Corralation between Littelfuse and Fabrinet

Given the investment horizon of 90 days Littelfuse is expected to under-perform the Fabrinet. But the stock apears to be less risky and, when comparing its historical volatility, Littelfuse is 1.99 times less risky than Fabrinet. The stock trades about -0.03 of its potential returns per unit of risk. The Fabrinet is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  22,084  in Fabrinet on August 31, 2024 and sell it today you would earn a total of  1,374  from holding Fabrinet or generate 6.22% return on investment over 90 days.

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

Littelfuse  vs.  Fabrinet

Littelfuse

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Littelfuse has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Littelfuse is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with Littelfuse and Fabrinet

The main advantage of trading using opposite Littelfuse and Fabrinet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Littelfuse 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 Littelfuse 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.

Check out your portfolio center.

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 Money Managers module to screen money managers from public funds and ETFs managed around the world.