Correlation Between London Stock and Hong Kong
Can any of the company-specific risk be diversified away by investing in both London Stock 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 London Stock and Hong Kong into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between London Stock Exchange and Hong Kong Exchange, you can compare the effects of market volatilities on London Stock 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 London Stock with a short position of Hong Kong. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Stock and Hong Kong.
Diversification Opportunities for London Stock and Hong Kong
0.22 | Correlation Coefficient |
Modest diversification
The 3 months correlation between London and Hong is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding London Stock Exchange and Hong Kong Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Kong Exchange and London Stock 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 London Stock Exchange 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 Exchange has no effect on the direction of London Stock i.e., London Stock and Hong Kong go up and down completely randomly.
Pair Corralation between London Stock and Hong Kong
Assuming the 90 days horizon London Stock Exchange is expected to generate 0.75 times more return on investment than Hong Kong. However, London Stock Exchange is 1.34 times less risky than Hong Kong. It trades about 0.08 of its potential returns per unit of risk. Hong Kong Exchange is currently generating about -0.18 per unit of risk. If you would invest 13,690 in London Stock Exchange on August 27, 2024 and sell it today you would earn a total of 385.00 from holding London Stock Exchange or generate 2.81% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
London Stock Exchange vs. Hong Kong Exchange
Performance |
| Timeline |
| London Stock Exchange |
| Hong Kong Exchange |
London Stock and Hong Kong Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with London Stock and Hong Kong
The main advantage of trading using opposite London Stock and Hong Kong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if London Stock 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.| London Stock vs. Deutsche Brse AG | London Stock vs. Singapore Exchange Limited | London Stock vs. Hong Kong Exchanges | London Stock vs. MSCI Inc |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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