Correlation Between Hon Hai and GeoVision

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

Diversification Opportunities for Hon Hai and GeoVision

0.8

Correlation Coefficient

Hon Hai  GeoVision

Very poor diversification

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

Pair Corralation between Hon Hai and GeoVision

Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 0.72 times more return on investment than GeoVision. However, Hon Hai Precision is 1.39 times less risky than GeoVision. It trades about 0.01 of its potential returns per unit of risk. GeoVision is currently generating about -0.04 per unit of risk. If you would invest  18,700  in Hon Hai Precision on October 1, 2024 and sell it today you would lose (50.00) from holding Hon Hai Precision or give up 0.27% of portfolio value over 90 days.

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

Hon Hai Precision  vs.  GeoVision

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. In spite of fairly stable basic indicators, Hon Hai is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

GeoVision

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days GeoVision has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, GeoVision 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 GeoVision

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

The idea behind Hon Hai Precision and GeoVision 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.