Correlation Between Hon Hai and Delta Electronics

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

Diversification Opportunities for Hon Hai and Delta Electronics

0.59

Correlation Coefficient

Hon Hai  Delta Electronics

Very weak diversification

The 3 months correlation between Hon and Delta is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Delta Electronics in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Delta Electronics 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 Delta Electronics. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Delta Electronics has no effect on the direction of Hon Hai i.e., Hon Hai and Delta Electronics go up and down completely randomly.

Pair Corralation between Hon Hai and Delta Electronics

Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 0.99 times more return on investment than Delta Electronics. However, Hon Hai Precision is 1.01 times less risky than Delta Electronics. It trades about 0.06 of its potential returns per unit of risk. Delta Electronics is currently generating about -0.01 per unit of risk. If you would invest  18,300  in Hon Hai Precision on August 31, 2024 and sell it today you would earn a total of  1,250  from holding Hon Hai Precision or generate 6.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.41%
Values	Daily Returns

Hon Hai Precision  vs.  Delta Electronics

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. In spite of fairly abnormal basic indicators, Hon Hai may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Delta Electronics

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Delta Electronics has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Delta Electronics is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Hon Hai and Delta Electronics

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

The idea behind Hon Hai Precision and Delta Electronics 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.