Correlation Between Hon Hai and Wise Plc

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

Diversification Opportunities for Hon Hai and Wise Plc

-0.4

Correlation Coefficient

Hon Hai  Wise Plc

Very good diversification

The 3 months correlation between Hon and Wise is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Wise plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Wise plc 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 Wise Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Wise plc has no effect on the direction of Hon Hai i.e., Hon Hai and Wise Plc go up and down completely randomly.

Pair Corralation between Hon Hai and Wise Plc

Assuming the 90 days horizon Hon Hai is expected to generate 1.21 times less return on investment than Wise Plc. But when comparing it to its historical volatility, Hon Hai Precision is 1.33 times less risky than Wise Plc. It trades about 0.07 of its potential returns per unit of risk. Wise plc is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  684.00  in Wise plc on September 26, 2024 and sell it today you would earn a total of  631.00  from holding Wise plc or generate 92.25% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	99.79%
Values	Daily Returns

Hon Hai Precision  vs.  Wise plc

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 nearly stable basic indicators, Hon Hai is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Wise plc

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Wise plc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental indicators, Wise Plc reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hon Hai and Wise Plc

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

The idea behind Hon Hai Precision and Wise plc 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 CEOs Directory module to screen CEOs from public companies around the world.