Correlation Between Hon Hai and PlayNitride

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

Diversification Opportunities for Hon Hai and PlayNitride

0.77

Correlation Coefficient

Hon Hai  PlayNitride

Poor diversification

The 3 months correlation between Hon and PlayNitride is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and PlayNitride in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PlayNitride 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 PlayNitride. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PlayNitride has no effect on the direction of Hon Hai i.e., Hon Hai and PlayNitride go up and down completely randomly.

Pair Corralation between Hon Hai and PlayNitride

Assuming the 90 days trading horizon Hon Hai is expected to generate 18.54 times less return on investment than PlayNitride. But when comparing it to its historical volatility, Hon Hai Precision is 2.65 times less risky than PlayNitride. It trades about 0.04 of its potential returns per unit of risk. PlayNitride is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  8,620  in PlayNitride on September 15, 2024 and sell it today you would earn a total of  8,180  from holding PlayNitride or generate 94.9% return on investment over 90 days.

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

Hon Hai Precision  vs.  PlayNitride

Hon Hai Precision

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hon Hai Precision are ranked lower than 2 (%) 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.

PlayNitride

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PlayNitride are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, PlayNitride showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hon Hai and PlayNitride

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

The idea behind Hon Hai Precision and PlayNitride 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..