Correlation Between Excellence Optoelectronic and Hon Hai

Can any of the company-specific risk be diversified away by investing in both Excellence Optoelectronic and Hon Hai 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 Excellence Optoelectronic and Hon Hai into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Excellence Optoelectronic and Hon Hai Precision, you can compare the effects of market volatilities on Excellence Optoelectronic and Hon Hai 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 Excellence Optoelectronic with a short position of Hon Hai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Excellence Optoelectronic and Hon Hai.

Diversification Opportunities for Excellence Optoelectronic and Hon Hai

0.67

Correlation Coefficient

Excellence Optoelectronic  Hon Hai

Poor diversification

The 3 months correlation between Excellence and Hon is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Excellence Optoelectronic and Hon Hai Precision in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hon Hai Precision and Excellence Optoelectronic 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 Excellence Optoelectronic are associated (or correlated) with Hon Hai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hon Hai Precision has no effect on the direction of Excellence Optoelectronic i.e., Excellence Optoelectronic and Hon Hai go up and down completely randomly.

Pair Corralation between Excellence Optoelectronic and Hon Hai

Assuming the 90 days trading horizon Excellence Optoelectronic is expected to generate 1.84 times more return on investment than Hon Hai. However, Excellence Optoelectronic is 1.84 times more volatile than Hon Hai Precision. It trades about 0.07 of its potential returns per unit of risk. Hon Hai Precision is currently generating about 0.05 per unit of risk. If you would invest  2,615  in Excellence Optoelectronic on September 3, 2024 and sell it today you would earn a total of  325.00  from holding Excellence Optoelectronic or generate 12.43% return on investment over 90 days.

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

Excellence Optoelectronic  vs.  Hon Hai Precision

Excellence Optoelectronic

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Excellence Optoelectronic are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Excellence Optoelectronic showed solid returns over the last few months and may actually be approaching a breakup point.

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 January 2025.

Pair Trading with Excellence Optoelectronic and Hon Hai

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

The idea behind Excellence Optoelectronic and Hon Hai Precision 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.