Correlation Between Hon Hai and Nan Ya
Can any of the company-specific risk be diversified away by investing in both Hon Hai and Nan Ya 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 Nan Ya 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 Nan Ya Plastics, you can compare the effects of market volatilities on Hon Hai and Nan Ya 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 Nan Ya. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Nan Ya.
Diversification Opportunities for Hon Hai and Nan Ya
Good diversification
The 3 months correlation between Hon and Nan is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Nan Ya Plastics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nan Ya Plastics 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 Nan Ya. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nan Ya Plastics has no effect on the direction of Hon Hai i.e., Hon Hai and Nan Ya go up and down completely randomly.
Pair Corralation between Hon Hai and Nan Ya
Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 1.4 times more return on investment than Nan Ya. However, Hon Hai is 1.4 times more volatile than Nan Ya Plastics. It trades about 0.09 of its potential returns per unit of risk. Nan Ya Plastics is currently generating about -0.09 per unit of risk. If you would invest 9,730 in Hon Hai Precision on August 30, 2024 and sell it today you would earn a total of 9,920 from holding Hon Hai Precision or generate 101.95% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hon Hai Precision vs. Nan Ya Plastics
Performance |
| Timeline |
| Hon Hai Precision |
| Nan Ya Plastics |
Hon Hai and Nan Ya Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hon Hai and Nan Ya
The main advantage of trading using opposite Hon Hai and Nan Ya positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, Nan Ya 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 Nan Ya will offset losses from the drop in Nan Ya's long position.| Hon Hai vs. United Microelectronics | Hon Hai vs. MediaTek | Hon Hai vs. Chunghwa Telecom Co | Hon Hai vs. Delta Electronics |
| Nan Ya vs. Formosa Plastics Corp | Nan Ya vs. Formosa Chemicals Fibre | Nan Ya vs. China Steel Corp | Nan Ya vs. Formosa Petrochemical Corp |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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