Correlation Between Chunghwa Precision and Hon Hai

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

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

Diversification Opportunities for Chunghwa Precision and Hon Hai

0.82

Correlation Coefficient

Chunghwa Precision  Hon Hai

Very poor diversification

The 3 months correlation between Chunghwa and Hon is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Chunghwa Precision Test 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 Chunghwa Precision 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 Chunghwa Precision Test 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 Chunghwa Precision i.e., Chunghwa Precision and Hon Hai go up and down completely randomly.

Pair Corralation between Chunghwa Precision and Hon Hai

Assuming the 90 days trading horizon Chunghwa Precision Test is expected to under-perform the Hon Hai. In addition to that, Chunghwa Precision is 1.41 times more volatile than Hon Hai Precision. It trades about -0.09 of its total potential returns per unit of risk. Hon Hai Precision is currently generating about -0.09 per unit of volatility. If you would invest  18,550  in Hon Hai Precision on December 21, 2024 and sell it today you would lose (2,050) from holding Hon Hai Precision or give up 11.05% of portfolio value over 90 days.

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

Chunghwa Precision Test  vs.  Hon Hai Precision

Chunghwa Precision Test

Risk-Adjusted Performance

Very Weak

Over the last 90 days Chunghwa Precision Test 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.

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 Chunghwa Precision and Hon Hai

The main advantage of trading using opposite Chunghwa Precision and Hon Hai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Chunghwa Precision 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 Chunghwa Precision Test 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.