Correlation Between Hon Hai and Xtra Energy

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

Diversification Opportunities for Hon Hai and Xtra Energy

-0.42

Correlation Coefficient

Hon Hai  Xtra Energy

Very good diversification

The 3 months correlation between Hon and Xtra is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Xtra Energy Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtra Energy Corp 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 Xtra Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtra Energy Corp has no effect on the direction of Hon Hai i.e., Hon Hai and Xtra Energy go up and down completely randomly.

Pair Corralation between Hon Hai and Xtra Energy

Assuming the 90 days horizon Hon Hai Precision is expected to generate 0.28 times more return on investment than Xtra Energy. However, Hon Hai Precision is 3.59 times less risky than Xtra Energy. It trades about 0.05 of its potential returns per unit of risk. Xtra Energy Corp is currently generating about 0.0 per unit of risk. If you would invest  1,153  in Hon Hai Precision on September 3, 2024 and sell it today you would earn a total of  68.00  from holding Hon Hai Precision or generate 5.9% return on investment over 90 days.

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

Hon Hai Precision  vs.  Xtra Energy Corp

Hon Hai Precision

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hon Hai Precision are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hon Hai may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Xtra Energy Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtra Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Xtra Energy is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Hon Hai and Xtra Energy

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

The idea behind Hon Hai Precision and Xtra Energy Corp 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.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.