Correlation Between Hon Hai and Murata Manufacturing

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

Diversification Opportunities for Hon Hai and Murata Manufacturing

0.25

Correlation Coefficient

Hon Hai  Murata Manufacturing

Modest diversification

The 3 months correlation between Hon and Murata is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Murata Manufacturing Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Murata Manufacturing 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 Murata Manufacturing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Murata Manufacturing has no effect on the direction of Hon Hai i.e., Hon Hai and Murata Manufacturing go up and down completely randomly.

Pair Corralation between Hon Hai and Murata Manufacturing

Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the Murata Manufacturing. In addition to that, Hon Hai is 2.12 times more volatile than Murata Manufacturing Co. It trades about -0.04 of its total potential returns per unit of risk. Murata Manufacturing Co is currently generating about 0.02 per unit of volatility. If you would invest  1,502  in Murata Manufacturing Co on December 29, 2024 and sell it today you would earn a total of  26.00  from holding Murata Manufacturing Co or generate 1.73% return on investment over 90 days.

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

Hon Hai Precision  vs.  Murata Manufacturing Co

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Murata Manufacturing

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Murata Manufacturing Co are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Murata Manufacturing is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Hon Hai and Murata Manufacturing

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

The idea behind Hon Hai Precision and Murata Manufacturing Co 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.