Correlation Between CME and Hong Kong
Can any of the company-specific risk be diversified away by investing in both CME 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 CME and Hong Kong into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between CME Group and Hong Kong Exchanges, you can compare the effects of market volatilities on CME 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 CME with a short position of Hong Kong. Check out your portfolio center. Please also check ongoing floating volatility patterns of CME and Hong Kong.
Diversification Opportunities for CME and Hong Kong
Weak diversification
The 3 months correlation between CME and Hong is 0.34. Overlapping area represents the amount of risk that can be diversified away by holding CME Group 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 CME 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 CME Group 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 CME i.e., CME and Hong Kong go up and down completely randomly.
Pair Corralation between CME and Hong Kong
Assuming the 90 days trading horizon CME Group is expected to generate 0.42 times more return on investment than Hong Kong. However, CME Group is 2.4 times less risky than Hong Kong. It trades about 0.28 of its potential returns per unit of risk. Hong Kong Exchanges is currently generating about 0.06 per unit of risk. If you would invest 20,949 in CME Group on September 12, 2024 and sell it today you would earn a total of 1,516 from holding CME Group or generate 7.24% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
CME Group vs. Hong Kong Exchanges
Performance |
| Timeline |
| CME Group |
| Hong Kong Exchanges |
CME and Hong Kong Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with CME and Hong Kong
The main advantage of trading using opposite CME and Hong Kong positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CME 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 CME Group 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.| Hong Kong vs. Ares Management Corp | Hong Kong vs. Jupiter Fund Management | Hong Kong vs. Brockhaus Capital Management | Hong Kong vs. AGF Management Limited |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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