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 Exchange, 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

0.06

Correlation Coefficient

CME  Hong Kong

Significant diversification

The 3 months correlation between CME and Hong is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding CME Group 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 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 Exchange 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

Considering the 90-day investment horizon CME is expected to generate 2.32 times less return on investment than Hong Kong. But when comparing it to its historical volatility, CME Group is 4.23 times less risky than Hong Kong. It trades about 0.18 of its potential returns per unit of risk. Hong Kong Exchange is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  3,075  in Hong Kong Exchange on September 20, 2024 and sell it today you would earn a total of  717.00  from holding Hong Kong Exchange or generate 23.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

CME Group  vs.  Hong Kong Exchange

CME Group

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak primary indicators, CME may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hong Kong Exchange

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Kong Exchange are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Hong Kong showed solid returns over the last few months and may actually be approaching a breakup point.

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 Exchange 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.