Correlation Between NVIDIA and Fabrinet

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

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

Diversification Opportunities for NVIDIA and Fabrinet

-0.35

Correlation Coefficient

NVIDIA  Fabrinet

Very good diversification

The 3 months correlation between NVIDIA and Fabrinet is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding NVIDIA and Fabrinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fabrinet and NVIDIA 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 NVIDIA 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 NVIDIA i.e., NVIDIA and Fabrinet go up and down completely randomly.

Pair Corralation between NVIDIA and Fabrinet

Given the investment horizon of 90 days NVIDIA is expected to under-perform the Fabrinet. In addition to that, NVIDIA is 1.07 times more volatile than Fabrinet. It trades about -0.24 of its total potential returns per unit of risk. Fabrinet is currently generating about -0.22 per unit of volatility. If you would invest  19,212  in Fabrinet on January 20, 2024 and sell it today you would lose (2,692) from holding Fabrinet or give up 14.01% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.65%
Values	Daily Returns

NVIDIA  vs.  Fabrinet

NVIDIA

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NVIDIA are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental indicators, NVIDIA sustained solid returns over the last few months and may actually be approaching a breakup point.

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.

Pair Trading with NVIDIA and Fabrinet

The main advantage of trading using opposite NVIDIA and Fabrinet positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NVIDIA 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 NVIDIA 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.

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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.