Correlation Between Hong Kong and AIA Group

Can any of the company-specific risk be diversified away by investing in both Hong Kong and AIA Group 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 Hong Kong and AIA Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hong Kong Exchange and AIA Group Ltd, you can compare the effects of market volatilities on Hong Kong and AIA Group 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 Hong Kong with a short position of AIA Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Kong and AIA Group.

Diversification Opportunities for Hong Kong and AIA Group

0.78

Correlation Coefficient

Hong Kong  AIA Group

Poor diversification

The 3 months correlation between Hong and AIA is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Hong Kong Exchange and AIA Group Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AIA Group and Hong Kong 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 Hong Kong Exchange are associated (or correlated) with AIA Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AIA Group has no effect on the direction of Hong Kong i.e., Hong Kong and AIA Group go up and down completely randomly.

Pair Corralation between Hong Kong and AIA Group

Assuming the 90 days horizon Hong Kong Exchange is expected to generate 1.2 times more return on investment than AIA Group. However, Hong Kong is 1.2 times more volatile than AIA Group Ltd. It trades about 0.17 of its potential returns per unit of risk. AIA Group Ltd is currently generating about 0.05 per unit of risk. If you would invest  3,773  in Hong Kong Exchange on December 28, 2024 and sell it today you would earn a total of  863.00  from holding Hong Kong Exchange or generate 22.87% return on investment over 90 days.

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

Hong Kong Exchange  vs.  AIA Group Ltd

Hong Kong Exchange

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Kong Exchange are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Hong Kong showed solid returns over the last few months and may actually be approaching a breakup point.

AIA Group

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in AIA Group Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward indicators, AIA Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Hong Kong and AIA Group

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

The idea behind Hong Kong Exchange and AIA Group Ltd 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.