Correlation Between Hong Kong and MSCI

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

Diversification Opportunities for Hong Kong and MSCI

0.31

Correlation Coefficient

Hong Kong  MSCI

Weak diversification

The 3 months correlation between Hong and MSCI is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Hong Kong Exchange and MSCI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSCI Inc 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 MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSCI Inc has no effect on the direction of Hong Kong i.e., Hong Kong and MSCI go up and down completely randomly.

Pair Corralation between Hong Kong and MSCI

Assuming the 90 days horizon Hong Kong Exchange is expected to generate 3.41 times more return on investment than MSCI. However, Hong Kong is 3.41 times more volatile than MSCI Inc. It trades about 0.1 of its potential returns per unit of risk. MSCI Inc is currently generating about 0.11 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	Very Weak
Accuracy	100.0%
Values	Daily Returns

Hong Kong Exchange  vs.  MSCI Inc

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.

MSCI Inc

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in MSCI Inc are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite fairly unfluctuating fundamental indicators, MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Hong Kong and MSCI

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

The idea behind Hong Kong Exchange and MSCI Inc 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.