Correlation Between Hon Hai and Para Light

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

Diversification Opportunities for Hon Hai and Para Light

0.76

Correlation Coefficient

Hon Hai  Para Light

Poor diversification

The 3 months correlation between Hon and Para is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Para Light Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Para Light Electronics 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 Para Light. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Para Light Electronics has no effect on the direction of Hon Hai i.e., Hon Hai and Para Light go up and down completely randomly.

Pair Corralation between Hon Hai and Para Light

Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 1.36 times more return on investment than Para Light. However, Hon Hai is 1.36 times more volatile than Para Light Electronics. It trades about -0.02 of its potential returns per unit of risk. Para Light Electronics is currently generating about -0.09 per unit of risk. If you would invest  20,450  in Hon Hai Precision on September 30, 2024 and sell it today you would lose (1,800) from holding Hon Hai Precision or give up 8.8% of portfolio value over 90 days.

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

Hon Hai Precision  vs.  Para Light Electronics

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 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.

Para Light Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Para Light Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Pair Trading with Hon Hai and Para Light

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

The idea behind Hon Hai Precision and Para Light Electronics 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.