Correlation Between Fabrinet and Eltek

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

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

Diversification Opportunities for Fabrinet and Eltek

0.38

Correlation Coefficient

Fabrinet  Eltek

Weak diversification

The 3 months correlation between Fabrinet and Eltek is 0.38. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and Eltek in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eltek 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 Eltek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eltek has no effect on the direction of Fabrinet i.e., Fabrinet and Eltek go up and down completely randomly.

Pair Corralation between Fabrinet and Eltek

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 0.6 times more return on investment than Eltek. However, Fabrinet is 1.67 times less risky than Eltek. It trades about 0.06 of its potential returns per unit of risk. Eltek is currently generating about -0.2 per unit of risk. If you would invest  20,472  in Fabrinet on February 11, 2024 and sell it today you would earn a total of  1,801  from holding Fabrinet or generate 8.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Fabrinet  vs.  Eltek

Fabrinet

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Fabrinet are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very conflicting basic indicators, Fabrinet may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Eltek

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eltek has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's basic indicators remain quite persistent which may send shares a bit higher in June 2024. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Fabrinet and Eltek

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

The idea behind Fabrinet and Eltek 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.