Correlation Between Hon Hai and WuXi AppTec

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

Diversification Opportunities for Hon Hai and WuXi AppTec

-0.8

Correlation Coefficient

Hon Hai  WuXi AppTec

Pay attention - limited upside

The 3 months correlation between Hon and WuXi is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and WuXi AppTec Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WuXi AppTec 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 WuXi AppTec. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WuXi AppTec has no effect on the direction of Hon Hai i.e., Hon Hai and WuXi AppTec go up and down completely randomly.

Pair Corralation between Hon Hai and WuXi AppTec

Assuming the 90 days horizon Hon Hai Precision is expected to generate 0.42 times more return on investment than WuXi AppTec. However, Hon Hai Precision is 2.41 times less risky than WuXi AppTec. It trades about 0.07 of its potential returns per unit of risk. WuXi AppTec Co is currently generating about 0.01 per unit of risk. If you would invest  622.00  in Hon Hai Precision on October 25, 2024 and sell it today you would earn a total of  476.00  from holding Hon Hai Precision or generate 76.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	99.6%
Values	Daily Returns

Hon Hai Precision  vs.  WuXi AppTec Co

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 fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

WuXi AppTec

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WuXi AppTec Co are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady forward indicators, WuXi AppTec reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hon Hai and WuXi AppTec

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

The idea behind Hon Hai Precision and WuXi AppTec Co 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.