Correlation Between Sun Hung and Merchants National
Can any of the company-specific risk be diversified away by investing in both Sun Hung and Merchants National 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 Merchants National 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 Merchants National Properties, you can compare the effects of market volatilities on Sun Hung and Merchants National 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 Merchants National. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sun Hung and Merchants National.
Diversification Opportunities for Sun Hung and Merchants National
0.64 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Sun and Merchants is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Sun Hung Kai and Merchants National Properties in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Merchants National 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 Merchants National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Merchants National has no effect on the direction of Sun Hung i.e., Sun Hung and Merchants National go up and down completely randomly.
Pair Corralation between Sun Hung and Merchants National
Assuming the 90 days horizon Sun Hung Kai is expected to under-perform the Merchants National. In addition to that, Sun Hung is 2.75 times more volatile than Merchants National Properties. It trades about -0.14 of its total potential returns per unit of risk. Merchants National Properties is currently generating about 0.07 per unit of volatility. If you would invest 173,500 in Merchants National Properties on September 1, 2024 and sell it today you would earn a total of 1,500 from holding Merchants National Properties or generate 0.86% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Sun Hung Kai vs. Merchants National Properties
Performance |
| Timeline |
| Sun Hung Kai |
| Merchants National |
Sun Hung and Merchants National Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Sun Hung and Merchants National
The main advantage of trading using opposite Sun Hung and Merchants National positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sun Hung position performs unexpectedly, Merchants National 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 Merchants National will offset losses from the drop in Merchants National's long position.| Sun Hung vs. Hong Kong Land | Sun Hung vs. Wharf Holdings | Sun Hung vs. Holiday Island Holdings | Sun Hung vs. Bayport International Holdings |
| Merchants National vs. SM Prime Holdings | Merchants National vs. Mitsubishi Estate Co | Merchants National vs. Daito Trust Construction |
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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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