Correlation Between Hon Hai and Mechema Chemicals

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

Diversification Opportunities for Hon Hai and Mechema Chemicals

-0.38

Correlation Coefficient

Hon Hai  Mechema Chemicals

Very good diversification

The 3 months correlation between Hon and Mechema is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Mechema Chemicals Int in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mechema Chemicals Int 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 Mechema Chemicals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mechema Chemicals Int has no effect on the direction of Hon Hai i.e., Hon Hai and Mechema Chemicals go up and down completely randomly.

Pair Corralation between Hon Hai and Mechema Chemicals

Assuming the 90 days trading horizon Hon Hai Precision is expected to under-perform the Mechema Chemicals. But the stock apears to be less risky and, when comparing its historical volatility, Hon Hai Precision is 1.05 times less risky than Mechema Chemicals. The stock trades about -0.21 of its potential returns per unit of risk. The Mechema Chemicals Int is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  6,920  in Mechema Chemicals Int on September 5, 2024 and sell it today you would earn a total of  140.00  from holding Mechema Chemicals Int or generate 2.02% 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.  Mechema Chemicals Int

Hon Hai Precision

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hon Hai Precision are ranked lower than 8 (%) 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.

Mechema Chemicals Int

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Hon Hai Precision and Mechema Chemicals Int 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.

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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.