Correlation Between Hang Seng and First Capital

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

Diversification Opportunities for Hang Seng and First Capital

0.4

Correlation Coefficient

Hang Seng  First Capital

Very weak diversification

The 3 months correlation between Hang and First is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Hang Seng Bank and First Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Capital 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 First Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Capital has no effect on the direction of Hang Seng i.e., Hang Seng and First Capital go up and down completely randomly.

Pair Corralation between Hang Seng and First Capital

Assuming the 90 days horizon Hang Seng Bank is expected to under-perform the First Capital. But the pink sheet apears to be less risky and, when comparing its historical volatility, Hang Seng Bank is 1.4 times less risky than First Capital. The pink sheet trades about -0.01 of its potential returns per unit of risk. The First Capital is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,517  in First Capital on October 3, 2024 and sell it today you would earn a total of  708.00  from holding First Capital or generate 28.13% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.31%
Values	Daily Returns

Hang Seng Bank  vs.  First Capital

Hang Seng Bank

Risk-Adjusted Performance

0 of 100

Very Weak

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

First Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Capital has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest weak performance, the Stock's basic indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Hang Seng and First Capital

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

The idea behind Hang Seng Bank and First Capital 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.