Correlation Between Fabrinet and LightPath Technologies
Can any of the company-specific risk be diversified away by investing in both Fabrinet and LightPath Technologies 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 LightPath Technologies into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fabrinet and LightPath Technologies, you can compare the effects of market volatilities on Fabrinet and LightPath Technologies 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 LightPath Technologies. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fabrinet and LightPath Technologies.
Diversification Opportunities for Fabrinet and LightPath Technologies
0.66 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Fabrinet and LightPath is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and LightPath Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LightPath Technologies 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 LightPath Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LightPath Technologies has no effect on the direction of Fabrinet i.e., Fabrinet and LightPath Technologies go up and down completely randomly.
Pair Corralation between Fabrinet and LightPath Technologies
Allowing for the 90-day total investment horizon Fabrinet is expected to generate 1.23 times more return on investment than LightPath Technologies. However, Fabrinet is 1.23 times more volatile than LightPath Technologies. It trades about -0.05 of its potential returns per unit of risk. LightPath Technologies is currently generating about -0.17 per unit of risk. If you would invest 24,565 in Fabrinet on August 27, 2024 and sell it today you would lose (1,522) from holding Fabrinet or give up 6.2% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Fabrinet vs. LightPath Technologies
Performance |
| Timeline |
| Fabrinet |
| LightPath Technologies |
Fabrinet and LightPath Technologies Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fabrinet and LightPath Technologies
The main advantage of trading using opposite Fabrinet and LightPath Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fabrinet position performs unexpectedly, LightPath Technologies 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 LightPath Technologies will offset losses from the drop in LightPath Technologies' long position.The idea behind Fabrinet and LightPath Technologies 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.| LightPath Technologies vs. Methode Electronics | LightPath Technologies vs. OSI Systems | LightPath Technologies vs. Plexus Corp | LightPath Technologies vs. CTS Corporation |
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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.
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