Correlation Between New Advanced and Hon Hai

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

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

Diversification Opportunities for New Advanced and Hon Hai

-0.56

Correlation Coefficient

New Advanced  Hon Hai

Excellent diversification

The 3 months correlation between New and Hon is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding New Advanced Electronics 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 New Advanced 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 New Advanced Electronics 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 New Advanced i.e., New Advanced and Hon Hai go up and down completely randomly.

Pair Corralation between New Advanced and Hon Hai

Assuming the 90 days trading horizon New Advanced Electronics is expected to generate 1.0 times more return on investment than Hon Hai. However, New Advanced Electronics is 1.0 times less risky than Hon Hai. It trades about 0.19 of its potential returns per unit of risk. Hon Hai Precision is currently generating about -0.07 per unit of risk. If you would invest  5,150  in New Advanced Electronics on December 20, 2024 and sell it today you would earn a total of  1,180  from holding New Advanced Electronics or generate 22.91% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

New Advanced Electronics  vs.  Hon Hai Precision

New Advanced Electronics

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in New Advanced Electronics are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, New Advanced showed 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. 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 New Advanced and Hon Hai

The main advantage of trading using opposite New Advanced and Hon Hai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New Advanced 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 New Advanced Electronics 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.