Correlation Between China Resources and Hong Kong

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

Diversification Opportunities for China Resources and Hong Kong

0.43

Correlation Coefficient

China Resources  Hong Kong

Very weak diversification

The 3 months correlation between China and Hong is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Land and Hong Kong Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Kong Land 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 Hong Kong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Kong Land has no effect on the direction of China Resources i.e., China Resources and Hong Kong go up and down completely randomly.

Pair Corralation between China Resources and Hong Kong

Assuming the 90 days horizon China Resources Land is expected to generate 11.15 times more return on investment than Hong Kong. However, China Resources is 11.15 times more volatile than Hong Kong Land. It trades about 0.06 of its potential returns per unit of risk. Hong Kong Land is currently generating about 0.02 per unit of risk. If you would invest  420.00  in China Resources Land on September 4, 2024 and sell it today you would lose (129.00) from holding China Resources Land or give up 30.71% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	59.19%
Values	Daily Returns

China Resources Land  vs.  Hong Kong Land

China Resources Land

Risk-Adjusted Performance

8 of 100

OK

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

Hong Kong Land

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Kong Land are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, Hong Kong showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China Resources and Hong Kong

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

The idea behind China Resources Land and Hong Kong Land 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.