Correlation Between Supercom and Fabrinet

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

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

Diversification Opportunities for Supercom and Fabrinet

0.31

Correlation Coefficient

Supercom  Fabrinet

Weak diversification

The 3 months correlation between Supercom and Fabrinet is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Supercom and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and Supercom 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 Supercom 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 Supercom i.e., Supercom and Fabrinet go up and down completely randomly.

Pair Corralation between Supercom and Fabrinet

Given the investment horizon of 90 days Supercom is expected to generate 1.45 times more return on investment than Fabrinet. However, Supercom is 1.45 times more volatile than Fabrinet. It trades about 0.1 of its potential returns per unit of risk. Fabrinet is currently generating about 0.05 per unit of risk. If you would invest  288.00  in Supercom on September 2, 2024 and sell it today you would earn a total of  78.00  from holding Supercom or generate 27.08% return on investment over 90 days.

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

Supercom  vs.  Fabrinet

Supercom

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Supercom are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite somewhat fragile fundamental indicators, Supercom sustained 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 unfluctuating basic indicators, Fabrinet may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Supercom and Fabrinet

The main advantage of trading using opposite Supercom and Fabrinet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Supercom 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 Supercom 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.