Correlation Between Hon Hai and Compal Electronics

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

Diversification Opportunities for Hon Hai and Compal Electronics

-0.46

Correlation Coefficient

Hon Hai  Compal Electronics

Very good diversification

The 3 months correlation between Hon and Compal is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Compal Electronics GDR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Compal Electronics GDR 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 Compal Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Compal Electronics GDR has no effect on the direction of Hon Hai i.e., Hon Hai and Compal Electronics go up and down completely randomly.

Pair Corralation between Hon Hai and Compal Electronics

Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the Compal Electronics. In addition to that, Hon Hai is 4.03 times more volatile than Compal Electronics GDR. It trades about -0.11 of its total potential returns per unit of risk. Compal Electronics GDR is currently generating about 0.12 per unit of volatility. If you would invest  295.00  in Compal Electronics GDR on December 30, 2024 and sell it today you would earn a total of  15.00  from holding Compal Electronics GDR or generate 5.08% return on investment over 90 days.

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

Hon Hai Precision  vs.  Compal Electronics GDR

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. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Compal Electronics GDR

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Compal Electronics GDR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Compal Electronics is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Hon Hai and Compal Electronics

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

The idea behind Hon Hai Precision and Compal Electronics GDR 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.