Correlation Between Amphenol and Fabrinet

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

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

Diversification Opportunities for Amphenol and Fabrinet

-0.56

Correlation Coefficient

Amphenol  Fabrinet

Excellent diversification

The 3 months correlation between Amphenol and Fabrinet is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Amphenol and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and Amphenol 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 Amphenol 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 Amphenol i.e., Amphenol and Fabrinet go up and down completely randomly.

Pair Corralation between Amphenol and Fabrinet

Considering the 90-day investment horizon Amphenol is expected to generate 1.43 times less return on investment than Fabrinet. But when comparing it to its historical volatility, Amphenol is 2.08 times less risky than Fabrinet. It trades about 0.09 of its potential returns per unit of risk. Fabrinet is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  8,841  in Fabrinet on February 3, 2024 and sell it today you would earn a total of  9,081  from holding Fabrinet or generate 102.71% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Amphenol  vs.  Fabrinet

Amphenol

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Amphenol are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak basic indicators, Amphenol demonstrated 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 weak performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in June 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Amphenol and Fabrinet

The main advantage of trading using opposite Amphenol and Fabrinet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Amphenol 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 Amphenol 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.