Correlation Between Hon Hai and ABC Taiwan
Can any of the company-specific risk be diversified away by investing in both Hon Hai and ABC Taiwan 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 ABC Taiwan 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 ABC Taiwan Electronics, you can compare the effects of market volatilities on Hon Hai and ABC Taiwan 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 ABC Taiwan. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and ABC Taiwan.
Diversification Opportunities for Hon Hai and ABC Taiwan
0.82 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Hon and ABC is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and ABC Taiwan Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ABC Taiwan Electronics 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 ABC Taiwan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ABC Taiwan Electronics has no effect on the direction of Hon Hai i.e., Hon Hai and ABC Taiwan go up and down completely randomly.
Pair Corralation between Hon Hai and ABC Taiwan
Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the ABC Taiwan. In addition to that, Hon Hai is 1.18 times more volatile than ABC Taiwan Electronics. It trades about -0.05 of its total potential returns per unit of risk. ABC Taiwan Electronics is currently generating about 0.03 per unit of volatility. If you would invest 2,275 in ABC Taiwan Electronics on August 28, 2024 and sell it today you would earn a total of 20.00 from holding ABC Taiwan Electronics or generate 0.88% 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. ABC Taiwan Electronics
Performance |
| Timeline |
| Hon Hai Precision |
| ABC Taiwan Electronics |
Hon Hai and ABC Taiwan Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hon Hai and ABC Taiwan
The main advantage of trading using opposite Hon Hai and ABC Taiwan positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, ABC Taiwan 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 ABC Taiwan will offset losses from the drop in ABC Taiwan's long position.| Hon Hai vs. United Microelectronics | Hon Hai vs. MediaTek | Hon Hai vs. Chunghwa Telecom Co | Hon Hai vs. Delta Electronics |
| ABC Taiwan vs. Jinan Acetate Chemical | ABC Taiwan vs. Shinkong Synthetic Fiber | ABC Taiwan vs. Johnson Chemical Pharmaceutical | ABC Taiwan vs. Silicon Power Computer |
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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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