Correlation Between Methode Electronics and Fabrinet
Can any of the company-specific risk be diversified away by investing in both Methode Electronics 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 Methode Electronics and Fabrinet into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Methode Electronics and Fabrinet, you can compare the effects of market volatilities on Methode Electronics 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 Methode Electronics with a short position of Fabrinet. Check out your portfolio center. Please also check ongoing floating volatility patterns of Methode Electronics and Fabrinet.
Diversification Opportunities for Methode Electronics and Fabrinet
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Methode and Fabrinet is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Methode Electronics and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and Methode Electronics 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 Methode Electronics 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 Methode Electronics i.e., Methode Electronics and Fabrinet go up and down completely randomly.
Pair Corralation between Methode Electronics and Fabrinet
Considering the 90-day investment horizon Methode Electronics is expected to under-perform the Fabrinet. But the stock apears to be less risky and, when comparing its historical volatility, Methode Electronics is 1.05 times less risky than Fabrinet. The stock trades about -0.07 of its potential returns per unit of risk. The Fabrinet is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest 8,946 in Fabrinet on January 25, 2024 and sell it today you would earn a total of 7,921 from holding Fabrinet or generate 88.54% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 99.8% |
Values | Daily Returns |
Methode Electronics vs. Fabrinet
Performance |
Timeline |
Methode Electronics |
Fabrinet |
Methode Electronics and Fabrinet Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Methode Electronics and Fabrinet
The main advantage of trading using opposite Methode Electronics and Fabrinet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Methode Electronics 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.Methode Electronics vs. Sanmina | Methode Electronics vs. Celestica | Methode Electronics vs. Plexus Corp | Methode Electronics vs. CTS Corporation |
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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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