Correlation Between Hon Hai and Fortinet

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

Diversification Opportunities for Hon Hai and Fortinet

0.6

Correlation Coefficient

Hon Hai  Fortinet

Poor diversification

The 3 months correlation between Hon and Fortinet is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and Fortinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortinet 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 Fortinet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortinet has no effect on the direction of Hon Hai i.e., Hon Hai and Fortinet go up and down completely randomly.

Pair Corralation between Hon Hai and Fortinet

Assuming the 90 days trading horizon Hon Hai is expected to generate 1.93 times less return on investment than Fortinet. In addition to that, Hon Hai is 1.38 times more volatile than Fortinet. It trades about 0.08 of its total potential returns per unit of risk. Fortinet is currently generating about 0.21 per unit of volatility. If you would invest  6,910  in Fortinet on September 4, 2024 and sell it today you would earn a total of  2,124  from holding Fortinet or generate 30.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Hon Hai Precision  vs.  Fortinet

Hon Hai Precision

Risk-Adjusted Performance

6 of 100

Modest

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. Despite nearly fragile basic indicators, Hon Hai reported solid returns over the last few months and may actually be approaching a breakup point.

Fortinet

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fortinet are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fortinet reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hon Hai and Fortinet

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

The idea behind Hon Hai Precision and Fortinet 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..