Correlation Between Fabrinet and IRobot
Can any of the company-specific risk be diversified away by investing in both Fabrinet and IRobot 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 IRobot into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Fabrinet and iRobot, you can compare the effects of market volatilities on Fabrinet and IRobot 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 IRobot. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fabrinet and IRobot.
Diversification Opportunities for Fabrinet and IRobot
Poor diversification
The 3 months correlation between Fabrinet and IRobot is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and iRobot in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iRobot 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 IRobot. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iRobot has no effect on the direction of Fabrinet i.e., Fabrinet and IRobot go up and down completely randomly.
Pair Corralation between Fabrinet and IRobot
Allowing for the 90-day total investment horizon Fabrinet is expected to generate 0.35 times more return on investment than IRobot. However, Fabrinet is 2.87 times less risky than IRobot. It trades about -0.19 of its potential returns per unit of risk. iRobot is currently generating about -0.07 per unit of risk. If you would invest 18,635 in Fabrinet on January 26, 2024 and sell it today you would lose (1,642) from holding Fabrinet or give up 8.81% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 95.45% |
| Values | Daily Returns |
Fabrinet vs. iRobot
Performance |
| Timeline |
| Fabrinet |
| iRobot |
Fabrinet and IRobot Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Fabrinet and IRobot
The main advantage of trading using opposite Fabrinet and IRobot positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fabrinet position performs unexpectedly, IRobot 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 IRobot will offset losses from the drop in IRobot's long position.The idea behind Fabrinet and iRobot 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.| IRobot vs. Tempur Sealy International | IRobot vs. La Z Boy Incorporated | IRobot vs. Purple Innovation | IRobot vs. MasterBrand |
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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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