Correlation Between Hon Hai and Quanta Computer

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

Diversification Opportunities for Hon Hai and Quanta Computer

0.97

Correlation Coefficient

Hon Hai  Quanta Computer

Almost no diversification

The 3 months correlation between Hon and Quanta is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Quanta Computer in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Quanta Computer 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 Quanta Computer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Quanta Computer has no effect on the direction of Hon Hai i.e., Hon Hai and Quanta Computer go up and down completely randomly.

Pair Corralation between Hon Hai and Quanta Computer

Assuming the 90 days trading horizon Hon Hai is expected to generate 1.29 times less return on investment than Quanta Computer. But when comparing it to its historical volatility, Hon Hai Precision is 1.27 times less risky than Quanta Computer. It trades about 0.05 of its potential returns per unit of risk. Quanta Computer is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  27,200  in Quanta Computer on September 3, 2024 and sell it today you would earn a total of  1,900  from holding Quanta Computer or generate 6.99% 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.  Quanta Computer

Hon Hai Precision

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hon Hai Precision are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hon Hai may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Quanta Computer

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Quanta Computer are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Quanta Computer may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hon Hai and Quanta Computer

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

The idea behind Hon Hai Precision and Quanta Computer 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .