Correlation Between Fabrinet and Knowles Cor

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

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

Diversification Opportunities for Fabrinet and Knowles Cor

0.42

Correlation Coefficient

Fabrinet  Knowles Cor

Very weak diversification

The 3 months correlation between Fabrinet and Knowles is 0.42. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and Knowles Cor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Knowles Cor 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 Knowles Cor. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Knowles Cor has no effect on the direction of Fabrinet i.e., Fabrinet and Knowles Cor go up and down completely randomly.

Pair Corralation between Fabrinet and Knowles Cor

Allowing for the 90-day total investment horizon Fabrinet is expected to under-perform the Knowles Cor. In addition to that, Fabrinet is 1.21 times more volatile than Knowles Cor. It trades about -0.18 of its total potential returns per unit of risk. Knowles Cor is currently generating about 0.03 per unit of volatility. If you would invest  1,610  in Knowles Cor on February 3, 2024 and sell it today you would earn a total of  11.00  from holding Knowles Cor or generate 0.68% return on investment over 90 days.

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

Fabrinet  vs.  Knowles Cor

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 uncertain 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.

Knowles Cor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Knowles Cor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Knowles Cor is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Fabrinet and Knowles Cor

The main advantage of trading using opposite Fabrinet and Knowles Cor positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fabrinet position performs unexpectedly, Knowles Cor 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 Knowles Cor will offset losses from the drop in Knowles Cor's long position.

The idea behind Fabrinet and Knowles Cor 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.