Correlation Between Hong Kong and Sun Hung

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

Diversification Opportunities for Hong Kong and Sun Hung

0.1

Correlation Coefficient

Hong Kong  Sun Hung

Average diversification

The 3 months correlation between Hong and Sun is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Hong Kong Land and Sun Hung Kai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Hung Kai 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 Sun Hung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Hung Kai has no effect on the direction of Hong Kong i.e., Hong Kong and Sun Hung go up and down completely randomly.

Pair Corralation between Hong Kong and Sun Hung

Assuming the 90 days horizon Hong Kong is expected to generate 3.94 times less return on investment than Sun Hung. But when comparing it to its historical volatility, Hong Kong Land is 1.58 times less risky than Sun Hung. It trades about 0.05 of its potential returns per unit of risk. Sun Hung Kai is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  959.00  in Sun Hung Kai on December 27, 2024 and sell it today you would earn a total of  127.00  from holding Sun Hung Kai or generate 13.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	86.67%
Values	Daily Returns

Hong Kong Land  vs.  Sun Hung Kai

Hong Kong Land

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Kong Land are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward-looking signals, Hong Kong is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sun Hung Kai

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Hung Kai are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak forward-looking indicators, Sun Hung reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hong Kong and Sun Hung

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

The idea behind Hong Kong Land and Sun Hung Kai 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.