Correlation Between Sun Hung and Hong Kong

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

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

Diversification Opportunities for Sun Hung and Hong Kong

0.74

Correlation Coefficient

Sun Hung  Hong Kong

Poor diversification

The 3 months correlation between Sun and Hong is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Sun Hung Kai and Hong Kong Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Kong Land and Sun Hung 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 Sun Hung Kai 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 Land has no effect on the direction of Sun Hung i.e., Sun Hung and Hong Kong go up and down completely randomly.

Pair Corralation between Sun Hung and Hong Kong

Assuming the 90 days horizon Sun Hung is expected to generate 1.24 times less return on investment than Hong Kong. But when comparing it to its historical volatility, Sun Hung Kai is 1.26 times less risky than Hong Kong. It trades about 0.24 of its potential returns per unit of risk. Hong Kong Land is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  2,160  in Hong Kong Land on November 29, 2024 and sell it today you would earn a total of  196.00  from holding Hong Kong Land or generate 9.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.45%
Values	Daily Returns

Sun Hung Kai  vs.  Hong Kong Land

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. In spite of fairly strong forward-looking indicators, Sun Hung is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Hong Kong Land

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Kong Land are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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.

Pair Trading with Sun Hung and Hong Kong

The main advantage of trading using opposite Sun Hung and Hong Kong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sun Hung 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 Sun Hung Kai and Hong Kong Land 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.