Correlation Between Fabrinet and Applied Opt

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Can any of the company-specific risk be diversified away by investing in both Fabrinet and Applied Opt 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 Fabrinet and Applied Opt into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fabrinet and Applied Opt, you can compare the effects of market volatilities on Fabrinet and Applied Opt 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 Fabrinet with a short position of Applied Opt. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fabrinet and Applied Opt.

Diversification Opportunities for Fabrinet and Applied Opt

0.19
  Correlation Coefficient

Average diversification

The 3 months correlation between Fabrinet and Applied is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and Applied Opt in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Applied Opt and Fabrinet 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 Fabrinet are associated (or correlated) with Applied Opt. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Applied Opt has no effect on the direction of Fabrinet i.e., Fabrinet and Applied Opt go up and down completely randomly.

Pair Corralation between Fabrinet and Applied Opt

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 5.22 times less return on investment than Applied Opt. But when comparing it to its historical volatility, Fabrinet is 2.44 times less risky than Applied Opt. It trades about 0.05 of its potential returns per unit of risk. Applied Opt is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  210.00  in Applied Opt on August 28, 2024 and sell it today you would earn a total of  3,581  from holding Applied Opt or generate 1705.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Fabrinet  vs.  Applied Opt

 Performance 
       Timeline  
Fabrinet 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
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.
Applied Opt 

Risk-Adjusted Performance

22 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Applied Opt are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Applied Opt demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Fabrinet and Applied Opt Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Fabrinet and Applied Opt

The main advantage of trading using opposite Fabrinet and Applied Opt positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fabrinet position performs unexpectedly, Applied Opt 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 Applied Opt will offset losses from the drop in Applied Opt's long position.
The idea behind Fabrinet and Applied Opt 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.

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