Correlation Between Hon Hai and E Ink

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

Diversification Opportunities for Hon Hai and E Ink

0.74

Correlation Coefficient

Hon Hai  E Ink

Poor diversification

The 3 months correlation between Hon and 8069 is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and E Ink Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on E Ink Holdings 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 E Ink. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of E Ink Holdings has no effect on the direction of Hon Hai i.e., Hon Hai and E Ink go up and down completely randomly.

Pair Corralation between Hon Hai and E Ink

Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the E Ink. But the stock apears to be less risky and, when comparing its historical volatility, Hon Hai Precision is 1.97 times less risky than E Ink. The stock trades about -0.33 of its potential returns per unit of risk. The E Ink Holdings is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  26,800  in E Ink Holdings on October 8, 2024 and sell it today you would lose (250.00) from holding E Ink Holdings or give up 0.93% 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.  E Ink Holdings

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.

E Ink Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days E Ink Holdings 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 E Ink

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

The idea behind Hon Hai Precision and E Ink Holdings 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.