Correlation Between NETGEAR and Fabrinet

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

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

Diversification Opportunities for NETGEAR and Fabrinet

-0.66

Correlation Coefficient

NETGEAR  Fabrinet

Excellent diversification

The 3 months correlation between NETGEAR and Fabrinet is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding NETGEAR and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and NETGEAR 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 NETGEAR 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 NETGEAR i.e., NETGEAR and Fabrinet go up and down completely randomly.

Pair Corralation between NETGEAR and Fabrinet

Given the investment horizon of 90 days NETGEAR is expected to generate 37.58 times less return on investment than Fabrinet. But when comparing it to its historical volatility, NETGEAR is 1.06 times less risky than Fabrinet. It trades about 0.01 of its potential returns per unit of risk. Fabrinet is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  22,089  in Fabrinet on October 23, 2024 and sell it today you would earn a total of  2,100  from holding Fabrinet or generate 9.51% return on investment over 90 days.

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

NETGEAR  vs.  Fabrinet

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 inconsistent technical and fundamental indicators, NETGEAR reported solid returns over the last few months and may actually be approaching a breakup point.

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

Pair Trading with NETGEAR and Fabrinet

The main advantage of trading using opposite NETGEAR and Fabrinet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NETGEAR 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 NETGEAR 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.