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
-0.26 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Hon and China is -0.26. 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 1.61 times more return on investment than China Mobile. However, Hon Hai is 1.61 times more volatile than China Mobile. It trades about 0.12 of its potential returns per unit of risk. China Mobile is currently generating about 0.02 per unit of risk. If you would invest 17,650 in Hon Hai Precision on September 6, 2024 and sell it today you would earn a total of 2,450 from holding Hon Hai Precision or generate 13.88% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Against |
Strength | Insignificant |
Accuracy | 98.41% |
Values | Daily Returns |
Hon Hai Precision vs. China Mobile
Performance |
Timeline |
Hon Hai Precision |
China Mobile |
Hon Hai and China Mobile Volatility Contrast
Predicted Return Density |
Returns |
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.Hon Hai vs. Taiwan Semiconductor Manufacturing | Hon Hai vs. Yang Ming Marine | Hon Hai vs. AU Optronics | Hon Hai vs. Nan Ya Plastics |
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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.
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