Correlation Between Fabrinet and Texas Instruments

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

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

Diversification Opportunities for Fabrinet and Texas Instruments

0.04

Correlation Coefficient

Fabrinet  Texas Instruments

Significant diversification

The 3 months correlation between Fabrinet and Texas is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Fabrinet and Texas Instruments Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Texas Instruments 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 Texas Instruments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Texas Instruments has no effect on the direction of Fabrinet i.e., Fabrinet and Texas Instruments go up and down completely randomly.

Pair Corralation between Fabrinet and Texas Instruments

Allowing for the 90-day total investment horizon Fabrinet is expected to generate 2.29 times more return on investment than Texas Instruments. However, Fabrinet is 2.29 times more volatile than Texas Instruments Incorporated. It trades about 0.06 of its potential returns per unit of risk. Texas Instruments Incorporated is currently generating about 0.01 per unit of risk. If you would invest  12,852  in Fabrinet on January 25, 2024 and sell it today you would earn a total of  4,141  from holding Fabrinet or generate 32.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.52%
Values	Daily Returns

Fabrinet  vs.  Texas Instruments Incorporated

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 uncertain 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.

Texas Instruments

Risk-Adjusted Performance

4 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Texas Instruments Incorporated are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Texas Instruments is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Fabrinet and Texas Instruments

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

The idea behind Fabrinet and Texas Instruments Incorporated 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.