Correlation Between Hon Hai and Canaan

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

Diversification Opportunities for Hon Hai and Canaan

-0.65

Correlation Coefficient

Hon Hai  Canaan

Excellent diversification

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

Pair Corralation between Hon Hai and Canaan

Assuming the 90 days horizon Hon Hai Precision is expected to under-perform the Canaan. But the pink sheet apears to be less risky and, when comparing its historical volatility, Hon Hai Precision is 3.43 times less risky than Canaan. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Canaan Inc is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  102.00  in Canaan Inc on October 8, 2024 and sell it today you would earn a total of  130.00  from holding Canaan Inc or generate 127.45% return on investment over 90 days.

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

Hon Hai Precision  vs.  Canaan Inc

Hon Hai Precision

Risk-Adjusted Performance

0 of 100

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.

Canaan Inc

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Canaan Inc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady basic indicators, Canaan displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hon Hai and Canaan

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

The idea behind Hon Hai Precision and Canaan Inc 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.