Correlation Between Hong Kong and CME

Can any of the company-specific risk be diversified away by investing in both Hong Kong and CME 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 Hong Kong and CME into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hong Kong Exchanges and CME Group, you can compare the effects of market volatilities on Hong Kong and CME 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 Hong Kong with a short position of CME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Kong and CME.

Diversification Opportunities for Hong Kong and CME

0.03

Correlation Coefficient

Hong Kong  CME

Significant diversification

The 3 months correlation between Hong and CME is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Hong Kong Exchanges and CME Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CME Group and Hong Kong 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 Hong Kong Exchanges are associated (or correlated) with CME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CME Group has no effect on the direction of Hong Kong i.e., Hong Kong and CME go up and down completely randomly.

Pair Corralation between Hong Kong and CME

Assuming the 90 days horizon Hong Kong is expected to generate 1.44 times less return on investment than CME. In addition to that, Hong Kong is 3.3 times more volatile than CME Group. It trades about 0.02 of its total potential returns per unit of risk. CME Group is currently generating about 0.08 per unit of volatility. If you would invest  15,797  in CME Group on September 19, 2024 and sell it today you would earn a total of  7,911  from holding CME Group or generate 50.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	92.94%
Values	Daily Returns

Hong Kong Exchanges  vs.  CME Group

Hong Kong Exchanges

Risk-Adjusted Performance

7 of 100

Modest

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

CME Group

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in CME Group are ranked lower than 13 (%) 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.

Pair Trading with Hong Kong and CME

The main advantage of trading using opposite Hong Kong and CME positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hong Kong position performs unexpectedly, CME 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 CME will offset losses from the drop in CME's long position.

The idea behind Hong Kong Exchanges and CME Group 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.