Correlation Between Bel Fuse and Hon Hai

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

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

Diversification Opportunities for Bel Fuse and Hon Hai

0.3

Correlation Coefficient

Bel Fuse  Hon Hai

Weak diversification

The 3 months correlation between Bel and Hon is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding Bel Fuse A 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 Bel Fuse 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 Bel Fuse A 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 Bel Fuse i.e., Bel Fuse and Hon Hai go up and down completely randomly.

Pair Corralation between Bel Fuse and Hon Hai

Assuming the 90 days horizon Bel Fuse A is expected to generate 1.34 times more return on investment than Hon Hai. However, Bel Fuse is 1.34 times more volatile than Hon Hai Precision. It trades about -0.05 of its potential returns per unit of risk. Hon Hai Precision is currently generating about -0.24 per unit of risk. If you would invest  9,603  in Bel Fuse A on September 26, 2024 and sell it today you would lose (323.00) from holding Bel Fuse A or give up 3.36% of portfolio value over 90 days.

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

Bel Fuse A  vs.  Hon Hai Precision

Bel Fuse A

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bel Fuse A has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest conflicting performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

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. Despite nearly stable basic indicators, Hon Hai is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bel Fuse and Hon Hai

The main advantage of trading using opposite Bel Fuse and Hon Hai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bel Fuse 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 Bel Fuse A 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.