Correlation Between First Community and Hang Seng

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

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

Diversification Opportunities for First Community and Hang Seng

0.6

Correlation Coefficient

First Community  Hang Seng

Poor diversification

The 3 months correlation between First and Hang is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding First Community Financial 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 First Community 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 First Community Financial 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 First Community i.e., First Community and Hang Seng go up and down completely randomly.

Pair Corralation between First Community and Hang Seng

Given the investment horizon of 90 days First Community Financial is expected to under-perform the Hang Seng. But the pink sheet apears to be less risky and, when comparing its historical volatility, First Community Financial is 1.12 times less risky than Hang Seng. The pink sheet trades about -0.06 of its potential returns per unit of risk. The Hang Seng Bank is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,101  in Hang Seng Bank on October 1, 2024 and sell it today you would earn a total of  121.00  from holding Hang Seng Bank or generate 10.99% return on investment over 90 days.

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

First Community Financial  vs.  Hang Seng Bank

First Community Financial

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Community Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Stock's technical and fundamental indicators remain relatively invariable which may send shares a bit higher in January 2025. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Hang Seng Bank

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Hang Seng Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Hang Seng is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First Community and Hang Seng

The main advantage of trading using opposite First Community and Hang Seng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if First Community 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 First Community Financial 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.