Correlation Between Fabrinet and Aviat Networks

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

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

Diversification Opportunities for Fabrinet and Aviat Networks

0.19

Correlation Coefficient

Fabrinet  Aviat Networks

Average diversification

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

Pair Corralation between Fabrinet and Aviat Networks

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 0.79 times more return on investment than Aviat Networks. However, Fabrinet is 1.26 times less risky than Aviat Networks. It trades about -0.01 of its potential returns per unit of risk. Aviat Networks is currently generating about -0.07 per unit of risk. If you would invest  24,479  in Fabrinet on September 26, 2024 and sell it today you would lose (2,355) from holding Fabrinet or give up 9.62% of portfolio value over 90 days.

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

Fabrinet  vs.  Aviat Networks

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 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.

Aviat Networks

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Aviat Networks has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Fabrinet and Aviat Networks

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

The idea behind Fabrinet and Aviat Networks 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..