Correlation Between Hon Hai and OBI Pharma

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

Diversification Opportunities for Hon Hai and OBI Pharma

-0.78

Correlation Coefficient

Hon Hai  OBI Pharma

Pay attention - limited upside

The 3 months correlation between Hon and OBI is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and OBI Pharma in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on OBI Pharma 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 OBI Pharma. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of OBI Pharma has no effect on the direction of Hon Hai i.e., Hon Hai and OBI Pharma go up and down completely randomly.

Pair Corralation between Hon Hai and OBI Pharma

Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the OBI Pharma. In addition to that, Hon Hai is 1.4 times more volatile than OBI Pharma. It trades about -0.21 of its total potential returns per unit of risk. OBI Pharma is currently generating about -0.12 per unit of volatility. If you would invest  6,520  in OBI Pharma on September 5, 2024 and sell it today you would lose (220.00) from holding OBI Pharma or give up 3.37% of portfolio value over 90 days.

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

Hon Hai Precision  vs.  OBI Pharma

Hon Hai Precision

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hon Hai Precision are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hon Hai showed solid returns over the last few months and may actually be approaching a breakup point.

OBI Pharma

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days OBI Pharma 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 January 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Pair Trading with Hon Hai and OBI Pharma

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

The idea behind Hon Hai Precision and OBI Pharma 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.