Correlation Between Hang Seng and Sun Hung
Can any of the company-specific risk be diversified away by investing in both Hang Seng and Sun Hung 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 Sun Hung 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 Sun Hung Kai, you can compare the effects of market volatilities on Hang Seng and Sun Hung 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 Sun Hung. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hang Seng and Sun Hung.
Diversification Opportunities for Hang Seng and Sun Hung
Very poor diversification
The 3 months correlation between Hang and Sun is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Hang Seng Bank and Sun Hung Kai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Hung Kai 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 Sun Hung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Hung Kai has no effect on the direction of Hang Seng i.e., Hang Seng and Sun Hung go up and down completely randomly.
Pair Corralation between Hang Seng and Sun Hung
Assuming the 90 days horizon Hang Seng Bank is expected to generate 0.82 times more return on investment than Sun Hung. However, Hang Seng Bank is 1.22 times less risky than Sun Hung. It trades about -0.04 of its potential returns per unit of risk. Sun Hung Kai is currently generating about -0.14 per unit of risk. If you would invest 1,208 in Hang Seng Bank on September 1, 2024 and sell it today you would lose (16.00) from holding Hang Seng Bank or give up 1.32% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Hang Seng Bank vs. Sun Hung Kai
Performance |
| Timeline |
| Hang Seng Bank |
| Sun Hung Kai |
Hang Seng and Sun Hung Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Hang Seng and Sun Hung
The main advantage of trading using opposite Hang Seng and Sun Hung positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hang Seng position performs unexpectedly, Sun Hung 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 Sun Hung will offset losses from the drop in Sun Hung's long position.| Hang Seng vs. Caixabank SA ADR | Hang Seng vs. Commercial International Bank | Hang Seng vs. PT Bank Rakyat | Hang Seng vs. Riverview Bancorp |
| Sun Hung vs. Hong Kong Land | Sun Hung vs. Wharf Holdings | Sun Hung vs. Holiday Island Holdings | Sun Hung vs. Bayport International Holdings |
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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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