Correlation Between Hon Hai and National Grid
Can any of the company-specific risk be diversified away by investing in both Hon Hai and National Grid 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 National Grid 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 National Grid PLC, you can compare the effects of market volatilities on Hon Hai and National Grid 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 National Grid. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and National Grid.
Diversification Opportunities for Hon Hai and National Grid
-0.47 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Hon and National is -0.47. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and National Grid PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Grid PLC 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 National Grid. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Grid PLC has no effect on the direction of Hon Hai i.e., Hon Hai and National Grid go up and down completely randomly.
Pair Corralation between Hon Hai and National Grid
Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the National Grid. In addition to that, Hon Hai is 2.47 times more volatile than National Grid PLC. It trades about -0.11 of its total potential returns per unit of risk. National Grid PLC is currently generating about 0.2 per unit of volatility. If you would invest 1,135 in National Grid PLC on September 1, 2024 and sell it today you would earn a total of 65.00 from holding National Grid PLC or generate 5.73% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hon Hai Precision vs. National Grid PLC
Performance |
| Timeline |
| Hon Hai Precision |
| National Grid PLC |
Hon Hai and National Grid Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hon Hai and National Grid
The main advantage of trading using opposite Hon Hai and National Grid positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, National Grid 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 National Grid will offset losses from the drop in National Grid's long position.The idea behind Hon Hai Precision and National Grid PLC pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.| National Grid vs. Enel SpA | National Grid vs. Enel SpA | National Grid vs. Dominion Energy | National Grid vs. Sempra |
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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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