Correlation Between Hon Hai and Wah Hong
Can any of the company-specific risk be diversified away by investing in both Hon Hai and Wah Hong 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 Wah Hong 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 Wah Hong Industrial, you can compare the effects of market volatilities on Hon Hai and Wah Hong 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 Wah Hong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Wah Hong.
Diversification Opportunities for Hon Hai and Wah Hong
Almost no diversification
The 3 months correlation between Hon and Wah is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Wah Hong Industrial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wah Hong Industrial 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 Wah Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wah Hong Industrial has no effect on the direction of Hon Hai i.e., Hon Hai and Wah Hong go up and down completely randomly.
Pair Corralation between Hon Hai and Wah Hong
Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the Wah Hong. But the stock apears to be less risky and, when comparing its historical volatility, Hon Hai Precision is 3.25 times less risky than Wah Hong. The stock trades about -0.18 of its potential returns per unit of risk. The Wah Hong Industrial is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 4,365 in Wah Hong Industrial on August 27, 2024 and sell it today you would earn a total of 435.00 from holding Wah Hong Industrial or generate 9.97% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hon Hai Precision vs. Wah Hong Industrial
Performance |
| Timeline |
| Hon Hai Precision |
| Wah Hong Industrial |
Hon Hai and Wah Hong Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hon Hai and Wah Hong
The main advantage of trading using opposite Hon Hai and Wah Hong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, Wah Hong 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 Wah Hong will offset losses from the drop in Wah Hong's long position.| Hon Hai vs. United Microelectronics | Hon Hai vs. MediaTek | Hon Hai vs. Chunghwa Telecom Co | Hon Hai vs. Delta Electronics |
| Wah Hong vs. Tatung System Technologies | Wah Hong vs. Taiwan Chinsan Electronic | Wah Hong vs. Alcor Micro | Wah Hong vs. AVY Precision Technology |
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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.
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