Correlation Between Hung Sheng and Long Bon

Can any of the company-specific risk be diversified away by investing in both Hung Sheng and Long Bon 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 Hung Sheng and Long Bon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hung Sheng Construction and Long Bon International, you can compare the effects of market volatilities on Hung Sheng and Long Bon 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 Hung Sheng with a short position of Long Bon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hung Sheng and Long Bon.

Diversification Opportunities for Hung Sheng and Long Bon

0.28

Correlation Coefficient

Hung Sheng  Long Bon

Modest diversification

The 3 months correlation between Hung and Long is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Hung Sheng Construction and Long Bon International in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Long Bon International and Hung Sheng 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 Hung Sheng Construction are associated (or correlated) with Long Bon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Long Bon International has no effect on the direction of Hung Sheng i.e., Hung Sheng and Long Bon go up and down completely randomly.

Pair Corralation between Hung Sheng and Long Bon

Assuming the 90 days trading horizon Hung Sheng Construction is expected to generate 1.12 times more return on investment than Long Bon. However, Hung Sheng is 1.12 times more volatile than Long Bon International. It trades about 0.11 of its potential returns per unit of risk. Long Bon International is currently generating about -0.16 per unit of risk. If you would invest  2,610  in Hung Sheng Construction on September 17, 2024 and sell it today you would earn a total of  70.00  from holding Hung Sheng Construction or generate 2.68% return on investment over 90 days.

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

Hung Sheng Construction  vs.  Long Bon International

Hung Sheng Construction

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hung Sheng Construction are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Hung Sheng is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Long Bon International

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Long Bon International are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Long Bon 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 Hung Sheng and Long Bon

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

The idea behind Hung Sheng Construction and Long Bon International 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.