Correlation Between Hon Hai and BBX Capital

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

Diversification Opportunities for Hon Hai and BBX Capital

0.65

Correlation Coefficient

Hon Hai  BBX Capital

Poor diversification

The 3 months correlation between Hon and BBX is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and BBX Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BBX Capital 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 BBX Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BBX Capital has no effect on the direction of Hon Hai i.e., Hon Hai and BBX Capital go up and down completely randomly.

Pair Corralation between Hon Hai and BBX Capital

Assuming the 90 days horizon Hon Hai Precision is expected to generate 1.39 times more return on investment than BBX Capital. However, Hon Hai is 1.39 times more volatile than BBX Capital. It trades about -0.07 of its potential returns per unit of risk. BBX Capital is currently generating about -0.12 per unit of risk. If you would invest  1,116  in Hon Hai Precision on December 27, 2024 and sell it today you would lose (128.00) from holding Hon Hai Precision or give up 11.47% 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.  BBX Capital

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.

BBX Capital

Risk-Adjusted Performance

Very Weak

Over the last 90 days BBX Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward indicators remain somewhat strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Hon Hai and BBX Capital

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

The idea behind Hon Hai Precision and BBX Capital 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..