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

0.47

Correlation Coefficient

Hong Kong  Sun Hung

Very weak diversification

The 3 months correlation between Hong and Sun is 0.47. 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 Land is expected to generate 3.83 times more return on investment than Sun Hung. However, Hong Kong is 3.83 times more volatile than Sun Hung Kai. It trades about -0.01 of its potential returns per unit of risk. Sun Hung Kai is currently generating about -0.23 per unit of risk. If you would invest  2,200  in Hong Kong Land on December 1, 2024 and sell it today you would lose (22.00) from holding Hong Kong Land or give up 1.0% of portfolio value over 90 days.

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

Hong Kong Land  vs.  Sun Hung Kai

Hong Kong Land

Risk-Adjusted Performance

Very Weak

Over the last 90 days Hong Kong Land has generated negative risk-adjusted returns adding no value to investors with long positions. 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

Very Weak

Over the last 90 days Sun Hung Kai has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's forward-looking indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.