Correlation Between Hon Hai and Asia Tech

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

Diversification Opportunities for Hon Hai and Asia Tech

-0.53

Correlation Coefficient

Hon Hai  Asia Tech

Excellent diversification

The 3 months correlation between Hon and Asia is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Asia Tech Image in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Asia Tech Image 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 Asia Tech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Asia Tech Image has no effect on the direction of Hon Hai i.e., Hon Hai and Asia Tech go up and down completely randomly.

Pair Corralation between Hon Hai and Asia Tech

Assuming the 90 days trading horizon Hon Hai is expected to generate 3.58 times less return on investment than Asia Tech. But when comparing it to its historical volatility, Hon Hai Precision is 1.47 times less risky than Asia Tech. It trades about 0.08 of its potential returns per unit of risk. Asia Tech Image is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  10,500  in Asia Tech Image on December 5, 2024 and sell it today you would earn a total of  1,250  from holding Asia Tech Image or generate 11.9% return on investment over 90 days.

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

Hon Hai Precision  vs.  Asia Tech Image

Hon Hai Precision

Risk-Adjusted Performance

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 April 2025. The latest fuss may also be a sign of long-term up-swing for the venture sophisticated investors.

Asia Tech Image

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Asia Tech Image are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Asia Tech showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hon Hai and Asia Tech

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

The idea behind Hon Hai Precision and Asia Tech Image 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.