Correlation Between Hon Hai and Methode Electronics
Can any of the company-specific risk be diversified away by investing in both Hon Hai and Methode Electronics 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 Methode Electronics 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 Methode Electronics, you can compare the effects of market volatilities on Hon Hai and Methode Electronics 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 Methode Electronics. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and Methode Electronics.
Diversification Opportunities for Hon Hai and Methode Electronics
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Hon and Methode is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Methode Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Methode Electronics 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 Methode Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Methode Electronics has no effect on the direction of Hon Hai i.e., Hon Hai and Methode Electronics go up and down completely randomly.
Pair Corralation between Hon Hai and Methode Electronics
Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 0.85 times more return on investment than Methode Electronics. However, Hon Hai Precision is 1.18 times less risky than Methode Electronics. It trades about -0.04 of its potential returns per unit of risk. Methode Electronics is currently generating about -0.18 per unit of risk. If you would invest 1,040 in Hon Hai Precision on December 29, 2024 and sell it today you would lose (140.00) from holding Hon Hai Precision or give up 13.46% of portfolio value over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Significant |
Accuracy | 100.0% |
Values | Daily Returns |
Hon Hai Precision vs. Methode Electronics
Performance |
Timeline |
Hon Hai Precision |
Methode Electronics |
Hon Hai and Methode Electronics Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Hon Hai and Methode Electronics
The main advantage of trading using opposite Hon Hai and Methode Electronics positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, Methode Electronics 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 Methode Electronics will offset losses from the drop in Methode Electronics' long position.Hon Hai vs. YATRA ONLINE DL 0001 | Hon Hai vs. G8 EDUCATION | Hon Hai vs. American Public Education | Hon Hai vs. DEVRY EDUCATION GRP |
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Check out your portfolio center.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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.
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