Correlation Between Hon Hai and NEXTDC
Can any of the company-specific risk be diversified away by investing in both Hon Hai and NEXTDC 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 NEXTDC 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 NEXTDC Limited, you can compare the effects of market volatilities on Hon Hai and NEXTDC 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 NEXTDC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hon Hai and NEXTDC.
Diversification Opportunities for Hon Hai and NEXTDC
Excellent diversification
The 3 months correlation between Hon and NEXTDC is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and NEXTDC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXTDC Limited 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 NEXTDC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXTDC Limited has no effect on the direction of Hon Hai i.e., Hon Hai and NEXTDC go up and down completely randomly.
Pair Corralation between Hon Hai and NEXTDC
Assuming the 90 days horizon Hon Hai Precision is expected to under-perform the NEXTDC. But the pink sheet apears to be less risky and, when comparing its historical volatility, Hon Hai Precision is 1.42 times less risky than NEXTDC. The pink sheet trades about -0.23 of its potential returns per unit of risk. The NEXTDC Limited is currently generating about 0.23 of returns per unit of risk over similar time horizon. If you would invest 888.00 in NEXTDC Limited on September 25, 2024 and sell it today you would earn a total of 118.00 from holding NEXTDC Limited or generate 13.29% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Very Weak |
Accuracy | 95.24% |
Values | Daily Returns |
Hon Hai Precision vs. NEXTDC Limited
Performance |
Timeline |
Hon Hai Precision |
NEXTDC Limited |
Hon Hai and NEXTDC Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with Hon Hai and NEXTDC
The main advantage of trading using opposite Hon Hai and NEXTDC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hon Hai position performs unexpectedly, NEXTDC 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 NEXTDC will offset losses from the drop in NEXTDC's long position.Hon Hai vs. alpha En | Hon Hai vs. Benchmark Electronics | Hon Hai vs. Bel Fuse A | Hon Hai vs. Methode Electronics |
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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