Correlation Between Norwegian Air and Hon Hai

Can any of the company-specific risk be diversified away by investing in both Norwegian Air 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 Norwegian Air and Hon Hai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Norwegian Air Shuttle and Hon Hai Precision, you can compare the effects of market volatilities on Norwegian Air 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 Norwegian Air with a short position of Hon Hai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Norwegian Air and Hon Hai.

Diversification Opportunities for Norwegian Air and Hon Hai

0.08

Correlation Coefficient

Norwegian Air  Hon Hai

Significant diversification

The 3 months correlation between Norwegian and Hon is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Norwegian Air Shuttle 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 Norwegian Air 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 Norwegian Air Shuttle 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 Norwegian Air i.e., Norwegian Air and Hon Hai go up and down completely randomly.

Pair Corralation between Norwegian Air and Hon Hai

Assuming the 90 days trading horizon Norwegian Air Shuttle is expected to under-perform the Hon Hai. In addition to that, Norwegian Air is 1.14 times more volatile than Hon Hai Precision. It trades about -0.12 of its total potential returns per unit of risk. Hon Hai Precision is currently generating about -0.06 per unit of volatility. If you would invest  1,130  in Hon Hai Precision on October 25, 2024 and sell it today you would lose (30.00) from holding Hon Hai Precision or give up 2.65% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Norwegian Air Shuttle  vs.  Hon Hai Precision

Norwegian Air Shuttle

Risk-Adjusted Performance

3 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Norwegian Air Shuttle are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Norwegian Air is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Hon Hai Precision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hon Hai Precision has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Norwegian Air and Hon Hai

The main advantage of trading using opposite Norwegian Air and Hon Hai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norwegian Air 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.

The idea behind Norwegian Air Shuttle and Hon Hai Precision 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.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.