Correlation Between Morningstar and Hong Kong

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

By analyzing existing cross correlation between Morningstar and Hong Kong Exchanges, you can compare the effects of market volatilities on Morningstar and Hong Kong 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 Morningstar with a short position of Hong Kong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar and Hong Kong.

Diversification Opportunities for Morningstar and Hong Kong

-0.75

Correlation Coefficient

Morningstar  Hong Kong

Pay attention - limited upside

The 3 months correlation between Morningstar and Hong is -0.75. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar and Hong Kong Exchanges in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Kong Exchanges and Morningstar 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 Morningstar are associated (or correlated) with Hong Kong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Kong Exchanges has no effect on the direction of Morningstar i.e., Morningstar and Hong Kong go up and down completely randomly.

Pair Corralation between Morningstar and Hong Kong

Given the investment horizon of 90 days Morningstar is expected to under-perform the Hong Kong. But the stock apears to be less risky and, when comparing its historical volatility, Morningstar is 3.58 times less risky than Hong Kong. The stock trades about -0.16 of its potential returns per unit of risk. The Hong Kong Exchanges is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  3,938  in Hong Kong Exchanges on December 29, 2024 and sell it today you would earn a total of  570.00  from holding Hong Kong Exchanges or generate 14.47% return on investment over 90 days.

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

Morningstar  vs.  Hong Kong Exchanges

Morningstar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morningstar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Hong Kong Exchanges

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Kong Exchanges are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Hong Kong reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Morningstar and Hong Kong

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

The idea behind Morningstar and Hong Kong Exchanges 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.