Correlation Between Hong Kong and Morningstar

Can any of the company-specific risk be diversified away by investing in both Hong Kong and Morningstar 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 Morningstar 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 Morningstar, you can compare the effects of market volatilities on Hong Kong and Morningstar 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 Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Kong and Morningstar.

Diversification Opportunities for Hong Kong and Morningstar

-0.01

Correlation Coefficient

Hong Kong  Morningstar

Good diversification

The 3 months correlation between Hong and Morningstar is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Hong Kong Exchanges and Morningstar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Morningstar 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 Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Morningstar has no effect on the direction of Hong Kong i.e., Hong Kong and Morningstar go up and down completely randomly.

Pair Corralation between Hong Kong and Morningstar

Assuming the 90 days horizon Hong Kong Exchanges is expected to generate 4.03 times more return on investment than Morningstar. However, Hong Kong is 4.03 times more volatile than Morningstar. It trades about 0.1 of its potential returns per unit of risk. Morningstar is currently generating about 0.06 per unit of risk. If you would invest  3,079  in Hong Kong Exchanges on September 19, 2024 and sell it today you would earn a total of  900.00  from holding Hong Kong Exchanges or generate 29.23% return on investment over 90 days.

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

Hong Kong Exchanges  vs.  Morningstar

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.

Morningstar

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Morningstar is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Hong Kong and Morningstar

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

The idea behind Hong Kong Exchanges and Morningstar 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.