Correlation Between Fabrinet and EMCORE

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

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

Diversification Opportunities for Fabrinet and EMCORE

0.65

Correlation Coefficient

Fabrinet  EMCORE

Poor diversification

The 3 months correlation between Fabrinet and EMCORE is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and EMCORE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EMCORE 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 EMCORE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EMCORE has no effect on the direction of Fabrinet i.e., Fabrinet and EMCORE go up and down completely randomly.

Pair Corralation between Fabrinet and EMCORE

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 0.47 times more return on investment than EMCORE. However, Fabrinet is 2.13 times less risky than EMCORE. It trades about 0.05 of its potential returns per unit of risk. EMCORE is currently generating about -0.02 per unit of risk. If you would invest  15,445  in Fabrinet on January 28, 2024 and sell it today you would earn a total of  2,100  from holding Fabrinet or generate 13.6% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.21%
Values	Daily Returns

Fabrinet  vs.  EMCORE

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 May 2024. The recent disarray may also be a sign of long period up-swing for the firm investors.

EMCORE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EMCORE has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unfluctuating performance in the last few months, the Stock's forward-looking signals remain relatively invariable which may send shares a bit higher in May 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Fabrinet and EMCORE

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

The idea behind Fabrinet and EMCORE 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.