Correlation Between Hang Lung and City Developments

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

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

Diversification Opportunities for Hang Lung and City Developments

0.7

Correlation Coefficient

Hang Lung  City Developments

Poor diversification

The 3 months correlation between Hang and City is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Hang Lung Properties and City Developments in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on City Developments and Hang Lung 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 Hang Lung Properties are associated (or correlated) with City Developments. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of City Developments has no effect on the direction of Hang Lung i.e., Hang Lung and City Developments go up and down completely randomly.

Pair Corralation between Hang Lung and City Developments

Assuming the 90 days horizon Hang Lung Properties is expected to under-perform the City Developments. But the pink sheet apears to be less risky and, when comparing its historical volatility, Hang Lung Properties is 1.39 times less risky than City Developments. The pink sheet trades about -0.27 of its potential returns per unit of risk. The City Developments is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  384.00  in City Developments on October 12, 2024 and sell it today you would lose (11.00) from holding City Developments or give up 2.86% of portfolio value over 90 days.

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

Hang Lung Properties  vs.  City Developments

Hang Lung Properties

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hang Lung Properties has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

City Developments

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Hang Lung and City Developments

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

The idea behind Hang Lung Properties and City Developments 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.