Correlation Between China Resources and Hang Seng

Can any of the company-specific risk be diversified away by investing in both China Resources and Hang Seng 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 China Resources and Hang Seng into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Resources Land and Hang Seng Bank, you can compare the effects of market volatilities on China Resources and Hang Seng 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 China Resources with a short position of Hang Seng. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Resources and Hang Seng.

Diversification Opportunities for China Resources and Hang Seng

-0.22

Correlation Coefficient

China Resources  Hang Seng

Very good diversification

The 3 months correlation between China and Hang is -0.22. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Land and Hang Seng Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hang Seng Bank and China Resources 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 China Resources Land are associated (or correlated) with Hang Seng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hang Seng Bank has no effect on the direction of China Resources i.e., China Resources and Hang Seng go up and down completely randomly.

Pair Corralation between China Resources and Hang Seng

Assuming the 90 days horizon China Resources Land is expected to under-perform the Hang Seng. In addition to that, China Resources is 1.27 times more volatile than Hang Seng Bank. It trades about -0.04 of its total potential returns per unit of risk. Hang Seng Bank is currently generating about 0.11 per unit of volatility. If you would invest  1,021  in Hang Seng Bank on October 10, 2024 and sell it today you would earn a total of  119.00  from holding Hang Seng Bank or generate 11.66% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

China Resources Land  vs.  Hang Seng Bank

China Resources Land

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days China Resources Land has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Hang Seng Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hang Seng Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hang Seng reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Resources and Hang Seng

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

The idea behind China Resources Land and Hang Seng Bank 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.