Correlation Between Hon Hai and FineTek

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

Diversification Opportunities for Hon Hai and FineTek

-0.37

Correlation Coefficient

Hon Hai  FineTek

Very good diversification

The 3 months correlation between Hon and FineTek is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and FineTek Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FineTek 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 FineTek. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FineTek has no effect on the direction of Hon Hai i.e., Hon Hai and FineTek go up and down completely randomly.

Pair Corralation between Hon Hai and FineTek

Assuming the 90 days trading horizon Hon Hai Precision is expected to generate 0.55 times more return on investment than FineTek. However, Hon Hai Precision is 1.8 times less risky than FineTek. It trades about 0.08 of its potential returns per unit of risk. FineTek Co is currently generating about 0.03 per unit of risk. If you would invest  17,750  in Hon Hai Precision on September 12, 2024 and sell it today you would earn a total of  1,450  from holding Hon Hai Precision or generate 8.17% 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.  FineTek Co

Hon Hai Precision

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hon Hai Precision are ranked lower than 6 (%) 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 January 2025.

FineTek

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FineTek Co are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, FineTek 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 FineTek

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

The idea behind Hon Hai Precision and FineTek Co 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.