Correlation Between Hon Hai and Ten Ren

Can any of the company-specific risk be diversified away by investing in both Hon Hai and Ten Ren 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 Ten Ren 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 Ten Ren Tea, you can compare the effects of market volatilities on Hon Hai and Ten Ren 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 Ten Ren. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Ten Ren.

Diversification Opportunities for Hon Hai and Ten Ren

0.9

Correlation Coefficient

Hon Hai  Ten Ren

Almost no diversification

The 3 months correlation between Hon and Ten is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Ten Ren Tea in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ten Ren Tea 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 Ten Ren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ten Ren Tea has no effect on the direction of Hon Hai i.e., Hon Hai and Ten Ren go up and down completely randomly.

Pair Corralation between Hon Hai and Ten Ren

Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the Ten Ren. In addition to that, Hon Hai is 2.74 times more volatile than Ten Ren Tea. It trades about -0.08 of its total potential returns per unit of risk. Ten Ren Tea is currently generating about 0.07 per unit of volatility. If you would invest  2,975  in Ten Ren Tea on October 26, 2024 and sell it today you would earn a total of  30.00  from holding Ten Ren Tea or generate 1.01% return on investment over 90 days.

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

Hon Hai Precision  vs.  Ten Ren Tea

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 abnormal performance in the last few months, the Stock's basic indicators remain fairly stable which may send shares a bit higher in February 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Ten Ren Tea

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ten Ren Tea has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Ten Ren is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Hon Hai and Ten Ren

The main advantage of trading using opposite Hon Hai and Ten Ren positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, Ten Ren 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 Ten Ren will offset losses from the drop in Ten Ren's long position.

The idea behind Hon Hai Precision and Ten Ren Tea 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.

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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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.