Correlation Between Hon Hai and CSL

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

Diversification Opportunities for Hon Hai and CSL

-0.08

Correlation Coefficient

Hon Hai  CSL

Good diversification

The 3 months correlation between Hon and CSL is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Hon Hai Precision and CSL Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSL Limited 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 CSL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSL Limited has no effect on the direction of Hon Hai i.e., Hon Hai and CSL go up and down completely randomly.

Pair Corralation between Hon Hai and CSL

Assuming the 90 days horizon Hon Hai Precision is expected to generate 1.51 times more return on investment than CSL. However, Hon Hai is 1.51 times more volatile than CSL Limited. It trades about 0.29 of its potential returns per unit of risk. CSL Limited is currently generating about 0.01 per unit of risk. If you would invest  641.00  in Hon Hai Precision on February 24, 2024 and sell it today you would earn a total of  394.00  from holding Hon Hai Precision or generate 61.47% 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.  CSL Limited

Hon Hai Precision

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Hon Hai Precision are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Hon Hai reported solid returns over the last few months and may actually be approaching a breakup point.

CSL Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CSL Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, CSL is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Hon Hai and CSL

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

The idea behind Hon Hai Precision and CSL Limited 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.