Correlation Between Hon Hai and Wah Hong

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

Diversification Opportunities for Hon Hai and Wah Hong

0.77

Correlation Coefficient

Hon Hai  Wah Hong

Poor diversification

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

Pair Corralation between Hon Hai and Wah Hong

Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 0.88 times more return on investment than Wah Hong. However, Hon Hai Precision is 1.13 times less risky than Wah Hong. It trades about 0.07 of its potential returns per unit of risk. Wah Hong Industrial is currently generating about 0.06 per unit of risk. If you would invest  9,778  in Hon Hai Precision on December 4, 2024 and sell it today you would earn a total of  7,222  from holding Hon Hai Precision or generate 73.86% 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.  Wah Hong Industrial

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.

Wah Hong Industrial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Wah Hong Industrial has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Wah Hong is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Hon Hai and Wah Hong

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

The idea behind Hon Hai Precision and Wah Hong Industrial 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..