Correlation Between Commercial International and Hang Seng

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

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

Diversification Opportunities for Commercial International and Hang Seng

0.56

Correlation Coefficient

Commercial International  Hang Seng

Very weak diversification

The 3 months correlation between Commercial and Hang is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Commercial International Bank 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 Commercial International 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 Commercial International Bank 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 Commercial International i.e., Commercial International and Hang Seng go up and down completely randomly.

Pair Corralation between Commercial International and Hang Seng

Assuming the 90 days horizon Commercial International is expected to generate 2.27 times less return on investment than Hang Seng. But when comparing it to its historical volatility, Commercial International Bank is 1.16 times less risky than Hang Seng. It trades about 0.07 of its potential returns per unit of risk. Hang Seng Bank is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,174  in Hang Seng Bank on December 30, 2024 and sell it today you would earn a total of  184.00  from holding Hang Seng Bank or generate 15.67% return on investment over 90 days.

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

Commercial International Bank  vs.  Hang Seng Bank

Commercial International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commercial International Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Commercial International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Hang Seng Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hang Seng Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Hang Seng showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Commercial International and Hang Seng

The main advantage of trading using opposite Commercial International and Hang Seng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commercial International 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 Commercial International Bank 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.

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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .