Correlation Between Hon Hai and Lian Hwa
Can any of the company-specific risk be diversified away by investing in both Hon Hai and Lian Hwa 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 Hon Hai and Lian Hwa into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Hon Hai Precision and Lian Hwa Foods, you can compare the effects of market volatilities on Hon Hai and Lian Hwa 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 Hon Hai with a short position of Lian Hwa. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Lian Hwa.
Diversification Opportunities for Hon Hai and Lian Hwa
Very poor diversification
The 3 months correlation between Hon and Lian is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Lian Hwa Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lian Hwa Foods and Hon Hai 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 Hon Hai Precision are associated (or correlated) with Lian Hwa. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lian Hwa Foods has no effect on the direction of Hon Hai i.e., Hon Hai and Lian Hwa go up and down completely randomly.
Pair Corralation between Hon Hai and Lian Hwa
Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the Lian Hwa. In addition to that, Hon Hai is 1.25 times more volatile than Lian Hwa Foods. It trades about -0.05 of its total potential returns per unit of risk. Lian Hwa Foods is currently generating about 0.18 per unit of volatility. If you would invest 11,150 in Lian Hwa Foods on August 28, 2024 and sell it today you would earn a total of 600.00 from holding Lian Hwa Foods or generate 5.38% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
Hon Hai Precision vs. Lian Hwa Foods
Performance |
Timeline |
Hon Hai Precision |
Lian Hwa Foods |
Hon Hai and Lian Hwa Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Hon Hai and Lian Hwa
The main advantage of trading using opposite Hon Hai and Lian Hwa positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, Lian Hwa 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 Lian Hwa will offset losses from the drop in Lian Hwa's long position.Hon Hai vs. United Microelectronics | Hon Hai vs. MediaTek | Hon Hai vs. Chunghwa Telecom Co | Hon Hai vs. Delta Electronics |
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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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.
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