Correlation Between Hon Hai and China Mobile

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

Diversification Opportunities for Hon Hai and China Mobile

-0.23

Correlation Coefficient

Hon Hai  China Mobile

Very good diversification

The 3 months correlation between Hon and China is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and China Mobile in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Mobile 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 China Mobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Mobile has no effect on the direction of Hon Hai i.e., Hon Hai and China Mobile go up and down completely randomly.

Pair Corralation between Hon Hai and China Mobile

Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 1.62 times more return on investment than China Mobile. However, Hon Hai is 1.62 times more volatile than China Mobile. It trades about 0.13 of its potential returns per unit of risk. China Mobile is currently generating about 0.02 per unit of risk. If you would invest  17,200  in Hon Hai Precision on September 8, 2024 and sell it today you would earn a total of  2,600  from holding Hon Hai Precision or generate 15.12% return on investment over 90 days.

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

Hon Hai Precision  vs.  China Mobile

Hon Hai Precision

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hon Hai Precision are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Hon Hai showed solid returns over the last few months and may actually be approaching a breakup point.

China Mobile

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in China Mobile are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, China Mobile is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Hon Hai and China Mobile

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

The idea behind Hon Hai Precision and China Mobile 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.