Correlation Between Hon Hai and CyberAgent

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

Diversification Opportunities for Hon Hai and CyberAgent

-0.53

Correlation Coefficient

Hon Hai  CyberAgent

Excellent diversification

The 3 months correlation between Hon and CyberAgent is -0.53. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and CyberAgent in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CyberAgent 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 CyberAgent. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CyberAgent has no effect on the direction of Hon Hai i.e., Hon Hai and CyberAgent go up and down completely randomly.

Pair Corralation between Hon Hai and CyberAgent

Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 1.4 times more return on investment than CyberAgent. However, Hon Hai is 1.4 times more volatile than CyberAgent. It trades about 0.06 of its potential returns per unit of risk. CyberAgent is currently generating about -0.01 per unit of risk. If you would invest  548.00  in Hon Hai Precision on September 25, 2024 and sell it today you would earn a total of  512.00  from holding Hon Hai Precision or generate 93.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Hon Hai Precision  vs.  CyberAgent

Hon Hai Precision

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hon Hai Precision are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hon Hai may actually be approaching a critical reversion point that can send shares even higher in January 2025.

CyberAgent

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CyberAgent are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, CyberAgent may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hon Hai and CyberAgent

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

The idea behind Hon Hai Precision and CyberAgent 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.