Correlation Between Hon Hai and Novartis
Can any of the company-specific risk be diversified away by investing in both Hon Hai and Novartis 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 Novartis 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 Novartis AG, you can compare the effects of market volatilities on Hon Hai and Novartis 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 Novartis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Novartis.
Diversification Opportunities for Hon Hai and Novartis
Excellent diversification
The 3 months correlation between Hon and Novartis is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Novartis AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Novartis AG 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 Novartis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Novartis AG has no effect on the direction of Hon Hai i.e., Hon Hai and Novartis go up and down completely randomly.
Pair Corralation between Hon Hai and Novartis
Assuming the 90 days horizon Hon Hai Precision is expected to generate 0.73 times more return on investment than Novartis. However, Hon Hai Precision is 1.37 times less risky than Novartis. It trades about 0.08 of its potential returns per unit of risk. Novartis AG is currently generating about 0.03 per unit of risk. If you would invest 643.00 in Hon Hai Precision on August 24, 2024 and sell it today you would earn a total of 597.00 from holding Hon Hai Precision or generate 92.85% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 90.51% |
| Values | Daily Returns |
Hon Hai Precision vs. Novartis AG
Performance |
| Timeline |
| Hon Hai Precision |
| Novartis AG |
Hon Hai and Novartis Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hon Hai and Novartis
The main advantage of trading using opposite Hon Hai and Novartis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, Novartis 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 Novartis will offset losses from the drop in Novartis' long position.The idea behind Hon Hai Precision and Novartis AG 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.| Novartis vs. Ono Pharmaceutical Co | Novartis vs. GSK plc | Novartis vs. Grifols SA ADR | Novartis vs. Pfizer Inc |
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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.
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