Correlation Between Fabrinet and Cisco Systems

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

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

Diversification Opportunities for Fabrinet and Cisco Systems

0.01

Correlation Coefficient

Fabrinet  Cisco Systems

Significant diversification

The 3 months correlation between Fabrinet and Cisco is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and Cisco Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cisco Systems 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 Cisco Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cisco Systems has no effect on the direction of Fabrinet i.e., Fabrinet and Cisco Systems go up and down completely randomly.

Pair Corralation between Fabrinet and Cisco Systems

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 13.84 times less return on investment than Cisco Systems. In addition to that, Fabrinet is 3.28 times more volatile than Cisco Systems. It trades about 0.0 of its total potential returns per unit of risk. Cisco Systems is currently generating about 0.2 per unit of volatility. If you would invest  5,212  in Cisco Systems on September 24, 2024 and sell it today you would earn a total of  686.00  from holding Cisco Systems or generate 13.16% return on investment over 90 days.

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

Fabrinet  vs.  Cisco Systems

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 recent stock price disarray, may contribute to short-term losses for the investors.

Cisco Systems

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cisco Systems are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Cisco Systems may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Fabrinet and Cisco Systems

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

The idea behind Fabrinet and Cisco Systems 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.

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 Commodity Directory module to find actively traded commodities issued by global exchanges.