Correlation Between Hong Kong and Japan Exchange

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

Diversification Opportunities for Hong Kong and Japan Exchange

0.19

Correlation Coefficient

Hong Kong  Japan Exchange

Average diversification

The 3 months correlation between Hong and Japan is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Hong Kong Exchange and Japan Exchange Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Japan Exchange 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 Exchange are associated (or correlated) with Japan Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Japan Exchange Group has no effect on the direction of Hong Kong i.e., Hong Kong and Japan Exchange go up and down completely randomly.

Pair Corralation between Hong Kong and Japan Exchange

Assuming the 90 days horizon Hong Kong Exchange is expected to generate 2.1 times more return on investment than Japan Exchange. However, Hong Kong is 2.1 times more volatile than Japan Exchange Group. It trades about 0.07 of its potential returns per unit of risk. Japan Exchange Group is currently generating about -0.09 per unit of risk. If you would invest  3,394  in Hong Kong Exchange on September 25, 2024 and sell it today you would earn a total of  439.00  from holding Hong Kong Exchange or generate 12.93% 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.  Japan Exchange Group

Hong Kong Exchange

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Kong Exchange are ranked lower than 5 (%) 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.

Japan Exchange Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Japan Exchange Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Hong Kong and Japan Exchange

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

The idea behind Hong Kong Exchange and Japan Exchange 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.