Correlation Between Hon Hai and Lungyen Life

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

Diversification Opportunities for Hon Hai and Lungyen Life

-0.41

Correlation Coefficient

Hon Hai  Lungyen Life

Very good diversification

The 3 months correlation between Hon and Lungyen is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Lungyen Life Service in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lungyen Life Service 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 Lungyen Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lungyen Life Service has no effect on the direction of Hon Hai i.e., Hon Hai and Lungyen Life go up and down completely randomly.

Pair Corralation between Hon Hai and Lungyen Life

Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the Lungyen Life. But the stock apears to be less risky and, when comparing its historical volatility, Hon Hai Precision is 1.33 times less risky than Lungyen Life. The stock trades about -0.3 of its potential returns per unit of risk. The Lungyen Life Service is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  5,020  in Lungyen Life Service on September 22, 2024 and sell it today you would earn a total of  410.00  from holding Lungyen Life Service or generate 8.17% 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.  Lungyen Life Service

Hon Hai Precision

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hon Hai Precision are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hon Hai is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lungyen Life Service

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lungyen Life Service are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lungyen Life showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hon Hai and Lungyen Life

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

The idea behind Hon Hai Precision and Lungyen Life Service 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.