Correlation Between Food Life and Hon Hai

Can any of the company-specific risk be diversified away by investing in both Food Life and Hon Hai 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 Food Life and Hon Hai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Food Life Companies and Hon Hai Precision, you can compare the effects of market volatilities on Food Life and Hon Hai 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 Food Life with a short position of Hon Hai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Food Life and Hon Hai.

Diversification Opportunities for Food Life and Hon Hai

-0.5

Correlation Coefficient

Food Life  Hon Hai

Very good diversification

The 3 months correlation between Food and Hon is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Food Life Companies and Hon Hai Precision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hon Hai Precision and Food Life 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 Food Life Companies are associated (or correlated) with Hon Hai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hon Hai Precision has no effect on the direction of Food Life i.e., Food Life and Hon Hai go up and down completely randomly.

Pair Corralation between Food Life and Hon Hai

Assuming the 90 days horizon Food Life Companies is expected to generate 0.78 times more return on investment than Hon Hai. However, Food Life Companies is 1.29 times less risky than Hon Hai. It trades about 0.17 of its potential returns per unit of risk. Hon Hai Precision is currently generating about -0.05 per unit of risk. If you would invest  2,060  in Food Life Companies on December 27, 2024 and sell it today you would earn a total of  700.00  from holding Food Life Companies or generate 33.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.41%
Values	Daily Returns

Food Life Companies  vs.  Hon Hai Precision

Food Life Companies

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Food Life Companies are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Food Life reported solid returns over the last few months and may actually be approaching a breakup point.

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. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Food Life and Hon Hai

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

The idea behind Food Life Companies and Hon Hai Precision 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.

Check out your portfolio center.

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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.