Correlation Between Hong Kong and Intercontinental

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

By analyzing existing cross correlation between Hong Kong Exchange and Intercontinental Exchange, you can compare the effects of market volatilities on Hong Kong and Intercontinental 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 Intercontinental. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hong Kong and Intercontinental.

Diversification Opportunities for Hong Kong and Intercontinental

0.12

Correlation Coefficient

Hong Kong  Intercontinental

Average diversification

The 3 months correlation between Hong and Intercontinental is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Hong Kong Exchange and Intercontinental Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Intercontinental Exchange 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 Exchange are associated (or correlated) with Intercontinental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Intercontinental Exchange has no effect on the direction of Hong Kong i.e., Hong Kong and Intercontinental go up and down completely randomly.

Pair Corralation between Hong Kong and Intercontinental

Assuming the 90 days horizon Hong Kong Exchange is expected to generate 3.55 times more return on investment than Intercontinental. However, Hong Kong is 3.55 times more volatile than Intercontinental Exchange. It trades about 0.1 of its potential returns per unit of risk. Intercontinental Exchange is currently generating about -0.08 per unit of risk. 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

Hong Kong Exchange  vs.  Intercontinental Exchange

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.

Intercontinental Exchange

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Intercontinental Exchange has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental indicators, Intercontinental is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Hong Kong and Intercontinental

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

The idea behind Hong Kong Exchange and Intercontinental 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.