Correlation Between Hon Hai and Scientific Energy
Can any of the company-specific risk be diversified away by investing in both Hon Hai and Scientific Energy 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 Scientific Energy 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 Scientific Energy, you can compare the effects of market volatilities on Hon Hai and Scientific Energy 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 Scientific Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Scientific Energy.
Diversification Opportunities for Hon Hai and Scientific Energy
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Hon and Scientific is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Scientific Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scientific Energy 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 Scientific Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scientific Energy has no effect on the direction of Hon Hai i.e., Hon Hai and Scientific Energy go up and down completely randomly.
Pair Corralation between Hon Hai and Scientific Energy
Assuming the 90 days horizon Hon Hai is expected to generate 15.23 times less return on investment than Scientific Energy. But when comparing it to its historical volatility, Hon Hai Precision is 11.27 times less risky than Scientific Energy. It trades about 0.09 of its potential returns per unit of risk. Scientific Energy is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 120.00 in Scientific Energy on August 23, 2024 and sell it today you would earn a total of 52.00 from holding Scientific Energy or generate 43.33% 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. Scientific Energy
Performance |
| Timeline |
| Hon Hai Precision |
| Scientific Energy |
Hon Hai and Scientific Energy Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hon Hai and Scientific Energy
The main advantage of trading using opposite Hon Hai and Scientific Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, Scientific Energy 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 Scientific Energy will offset losses from the drop in Scientific Energy's long position.The idea behind Hon Hai Precision and Scientific Energy 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.| Scientific Energy vs. Arhaus Inc | Scientific Energy vs. Floor Decor Holdings | Scientific Energy vs. Live Ventures | Scientific Energy vs. Marvell Technology Group |
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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.
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