Correlation Between Hon Hai and Reward Wool
Can any of the company-specific risk be diversified away by investing in both Hon Hai and Reward Wool 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 Reward Wool 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 Reward Wool Industry, you can compare the effects of market volatilities on Hon Hai and Reward Wool 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 Reward Wool. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Reward Wool.
Diversification Opportunities for Hon Hai and Reward Wool
-0.87 | Correlation Coefficient |
Pay attention - limited upside
The 3 months correlation between Hon and Reward is -0.87. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Reward Wool Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reward Wool Industry 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 Reward Wool. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reward Wool Industry has no effect on the direction of Hon Hai i.e., Hon Hai and Reward Wool go up and down completely randomly.
Pair Corralation between Hon Hai and Reward Wool
Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 1.05 times more return on investment than Reward Wool. However, Hon Hai is 1.05 times more volatile than Reward Wool Industry. It trades about 0.09 of its potential returns per unit of risk. Reward Wool Industry is currently generating about 0.08 per unit of risk. If you would invest 9,730 in Hon Hai Precision on August 28, 2024 and sell it today you would earn a total of 10,520 from holding Hon Hai Precision or generate 108.12% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hon Hai Precision vs. Reward Wool Industry
Performance |
| Timeline |
| Hon Hai Precision |
| Reward Wool Industry |
Hon Hai and Reward Wool Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hon Hai and Reward Wool
The main advantage of trading using opposite Hon Hai and Reward Wool positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, Reward Wool 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 Reward Wool will offset losses from the drop in Reward Wool's long position.| Hon Hai vs. United Microelectronics | Hon Hai vs. MediaTek | Hon Hai vs. Chunghwa Telecom Co | Hon Hai vs. Delta Electronics |
| Reward Wool vs. Tung Ho Textile | Reward Wool vs. Carnival Industrial Corp | Reward Wool vs. Yi Jinn Industrial | Reward Wool vs. Tah Tong Textile |
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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.
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