Correlation Between Dow Jones and Hon Hai
Can any of the company-specific risk be diversified away by investing in both Dow Jones and Hon Hai 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 Dow Jones and Hon Hai into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Dow Jones Industrial and Hon Hai Precision, you can compare the effects of market volatilities on Dow Jones and Hon Hai 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 Dow Jones with a short position of Hon Hai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dow Jones and Hon Hai.
Diversification Opportunities for Dow Jones and Hon Hai
Poor diversification
The 3 months correlation between Dow and Hon is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Dow Jones Industrial and Hon Hai Precision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hon Hai Precision and Dow Jones 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 Dow Jones Industrial are associated (or correlated) with Hon Hai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hon Hai Precision has no effect on the direction of Dow Jones i.e., Dow Jones and Hon Hai go up and down completely randomly.
Pair Corralation between Dow Jones and Hon Hai
Assuming the 90 days trading horizon Dow Jones is expected to generate 2.56 times less return on investment than Hon Hai. But when comparing it to its historical volatility, Dow Jones Industrial is 3.17 times less risky than Hon Hai. It trades about 0.12 of its potential returns per unit of risk. Hon Hai Precision is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest 10,207 in Hon Hai Precision on August 31, 2024 and sell it today you would earn a total of 9,343 from holding Hon Hai Precision or generate 91.54% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 98.13% |
| Values | Daily Returns |
Dow Jones Industrial vs. Hon Hai Precision
Performance |
| Timeline |
Dow Jones and Hon Hai Volatility Contrast
Predicted Return Density |
| Returns |
Dow Jones Industrial
Pair trading matchups for Dow Jones
Hon Hai Precision
Pair trading matchups for Hon Hai
Pair Trading with Dow Jones and Hon Hai
The main advantage of trading using opposite Dow Jones and Hon Hai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dow Jones position performs unexpectedly, Hon Hai 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 Hon Hai will offset losses from the drop in Hon Hai's long position.| Dow Jones vs. Aerofoam Metals | Dow Jones vs. ACG Metals Limited | Dow Jones vs. China Clean Energy | Dow Jones vs. Fast Retailing Co |
| Hon Hai vs. United Microelectronics | Hon Hai vs. MediaTek | Hon Hai vs. Chunghwa Telecom Co | Hon Hai vs. Delta Electronics |
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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..
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