Correlation Between Hang Seng and First Community

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

Diversification Opportunities for Hang Seng and First Community

-0.07

Correlation Coefficient

Hang Seng  First Community

Good diversification

The 3 months correlation between Hang and First is -0.07. Overlapping area represents the amount of risk that can be diversified away by holding Hang Seng Bank and First Community in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Community 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 Community. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Community has no effect on the direction of Hang Seng i.e., Hang Seng and First Community go up and down completely randomly.

Pair Corralation between Hang Seng and First Community

Assuming the 90 days horizon Hang Seng Bank is expected to under-perform the First Community. In addition to that, Hang Seng is 1.18 times more volatile than First Community. It trades about -0.05 of its total potential returns per unit of risk. First Community is currently generating about -0.04 per unit of volatility. If you would invest  895.00  in First Community on September 21, 2024 and sell it today you would lose (15.00) from holding First Community or give up 1.68% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Hang Seng Bank  vs.  First Community

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 Community

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days First Community has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, First Community is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Hang Seng and First Community

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

The idea behind Hang Seng Bank and First Community 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.