Correlation Between RF Industries and Fabrinet

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

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

Diversification Opportunities for RF Industries and Fabrinet

0.43

Correlation Coefficient

RF Industries  Fabrinet

Very weak diversification

The 3 months correlation between RFIL and Fabrinet is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding RF Industries and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and RF Industries 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 RF Industries 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 RF Industries i.e., RF Industries and Fabrinet go up and down completely randomly.

Pair Corralation between RF Industries and Fabrinet

Given the investment horizon of 90 days RF Industries is expected to generate 0.92 times more return on investment than Fabrinet. However, RF Industries is 1.08 times less risky than Fabrinet. It trades about 0.07 of its potential returns per unit of risk. Fabrinet is currently generating about 0.04 per unit of risk. If you would invest  371.00  in RF Industries on September 5, 2024 and sell it today you would earn a total of  44.00  from holding RF Industries or generate 11.86% return on investment over 90 days.

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

RF Industries  vs.  Fabrinet

RF Industries

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in RF Industries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite unfluctuating forward indicators, RF Industries disclosed solid returns over the last few months and may actually be approaching a breakup point.

Fabrinet

Risk-Adjusted Performance

3 of 100

Insignificant

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 uncertain basic indicators, Fabrinet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with RF Industries and Fabrinet

The main advantage of trading using opposite RF Industries and Fabrinet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if RF Industries 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 RF Industries 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.