Correlation Between Hong Kong and Country Garden

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

By analyzing existing cross correlation between Hong Kong Land and Country Garden Holdings, you can compare the effects of market volatilities on Hong Kong and Country Garden 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 Country Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Kong and Country Garden.

Diversification Opportunities for Hong Kong and Country Garden

0.64

Correlation Coefficient

Hong Kong  Country Garden

Poor diversification

The 3 months correlation between Hong and Country is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Hong Kong Land and Country Garden Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Country Garden Holdings 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 Land are associated (or correlated) with Country Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Country Garden Holdings has no effect on the direction of Hong Kong i.e., Hong Kong and Country Garden go up and down completely randomly.

Pair Corralation between Hong Kong and Country Garden

Assuming the 90 days horizon Hong Kong is expected to generate 5.03 times less return on investment than Country Garden. But when comparing it to its historical volatility, Hong Kong Land is 5.87 times less risky than Country Garden. It trades about 0.08 of its potential returns per unit of risk. Country Garden Holdings is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  230.00  in Country Garden Holdings on September 4, 2024 and sell it today you would earn a total of  145.00  from holding Country Garden Holdings or generate 63.04% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.55%
Values	Daily Returns

Hong Kong Land  vs.  Country Garden Holdings

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.

Country Garden Holdings

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Country Garden Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly weak basic indicators, Country Garden showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hong Kong and Country Garden

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

The idea behind Hong Kong Land and Country Garden Holdings 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.