Correlation Between Da Li and Hung Sheng

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

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

Diversification Opportunities for Da Li and Hung Sheng

0.12

Correlation Coefficient

Da Li  Hung Sheng

Average diversification

The 3 months correlation between 6177 and Hung is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Da Li Development Co and Hung Sheng Construction in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hung Sheng Construction and Da Li 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 Da Li Development Co are associated (or correlated) with Hung Sheng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hung Sheng Construction has no effect on the direction of Da Li i.e., Da Li and Hung Sheng go up and down completely randomly.

Pair Corralation between Da Li and Hung Sheng

Assuming the 90 days trading horizon Da Li Development Co is expected to generate 1.43 times more return on investment than Hung Sheng. However, Da Li is 1.43 times more volatile than Hung Sheng Construction. It trades about -0.16 of its potential returns per unit of risk. Hung Sheng Construction is currently generating about -0.28 per unit of risk. If you would invest  4,450  in Da Li Development Co on October 13, 2024 and sell it today you would lose (365.00) from holding Da Li Development Co or give up 8.2% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.45%
Values	Daily Returns

Da Li Development Co  vs.  Hung Sheng Construction

Da Li Development

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Da Li Development Co has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest abnormal performance, the Stock's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the venture sophisticated investors.

Hung Sheng Construction

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hung Sheng Construction has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

Pair Trading with Da Li and Hung Sheng

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

The idea behind Da Li Development Co and Hung Sheng Construction 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..