Correlation Between Hon Hai and Hubbell Incorporated

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

Diversification Opportunities for Hon Hai and Hubbell Incorporated

0.55

Correlation Coefficient

Hon Hai  Hubbell Incorporated

Very weak diversification

The 3 months correlation between Hon and Hubbell is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Hubbell Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hubbell Incorporated 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 Hubbell Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hubbell Incorporated has no effect on the direction of Hon Hai i.e., Hon Hai and Hubbell Incorporated go up and down completely randomly.

Pair Corralation between Hon Hai and Hubbell Incorporated

Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 1.94 times more return on investment than Hubbell Incorporated. However, Hon Hai is 1.94 times more volatile than Hubbell Incorporated. It trades about -0.01 of its potential returns per unit of risk. Hubbell Incorporated is currently generating about -0.18 per unit of risk. If you would invest  1,090  in Hon Hai Precision on November 28, 2024 and sell it today you would lose (60.00) from holding Hon Hai Precision or give up 5.5% of portfolio value over 90 days.

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

Hon Hai Precision  vs.  Hubbell Incorporated

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

Hubbell Incorporated

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hubbell Incorporated has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's technical and fundamental indicators remain nearly stable which may send shares a bit higher in March 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Hon Hai and Hubbell Incorporated

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

The idea behind Hon Hai Precision and Hubbell Incorporated 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.