Correlation Between Nortech Systems and Fabrinet

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

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

Diversification Opportunities for Nortech Systems and Fabrinet

0.03

Correlation Coefficient

Nortech Systems  Fabrinet

Significant diversification

The 3 months correlation between Nortech and Fabrinet is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Nortech Systems Incorporated and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and Nortech Systems 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 Nortech Systems Incorporated 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 Nortech Systems i.e., Nortech Systems and Fabrinet go up and down completely randomly.

Pair Corralation between Nortech Systems and Fabrinet

Given the investment horizon of 90 days Nortech Systems Incorporated is expected to under-perform the Fabrinet. In addition to that, Nortech Systems is 1.02 times more volatile than Fabrinet. It trades about -0.03 of its total potential returns per unit of risk. Fabrinet is currently generating about 0.01 per unit of volatility. If you would invest  24,499  in Fabrinet on September 8, 2024 and sell it today you would lose (199.00) from holding Fabrinet or give up 0.81% of portfolio value over 90 days.

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

Nortech Systems Incorporated  vs.  Fabrinet

Nortech Systems

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nortech Systems Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Nortech Systems is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Fabrinet

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fabrinet are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Fabrinet displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nortech Systems and Fabrinet

The main advantage of trading using opposite Nortech Systems and Fabrinet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nortech Systems 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 Nortech Systems Incorporated 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.