Correlation Between Hang Seng and Commercial International

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

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

Diversification Opportunities for Hang Seng and Commercial International

0.54

Correlation Coefficient

Hang Seng  Commercial International

Very weak diversification

The 3 months correlation between Hang and Commercial is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Hang Seng Bank and Commercial International Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commercial International and Hang Seng 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 Seng Bank are associated (or correlated) with Commercial International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commercial International has no effect on the direction of Hang Seng i.e., Hang Seng and Commercial International go up and down completely randomly.

Pair Corralation between Hang Seng and Commercial International

Assuming the 90 days horizon Hang Seng Bank is expected to generate 1.16 times more return on investment than Commercial International. However, Hang Seng is 1.16 times more volatile than Commercial International Bank. It trades about 0.14 of its potential returns per unit of risk. Commercial International Bank is currently generating about 0.07 per unit of risk. If you would invest  1,174  in Hang Seng Bank on December 30, 2024 and sell it today you would earn a total of  184.00  from holding Hang Seng Bank or generate 15.67% return on investment over 90 days.

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

Hang Seng Bank  vs.  Commercial International Bank

Hang Seng Bank

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Hang Seng Bank are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Hang Seng showed solid returns over the last few months and may actually be approaching a breakup point.

Commercial International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Commercial International Bank are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Commercial International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Hang Seng and Commercial International

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

The idea behind Hang Seng Bank and Commercial International Bank 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.