Correlation Between Hong Kong and EGRNF

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

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

Diversification Opportunities for Hong Kong and EGRNF

-0.4

Correlation Coefficient

Hong Kong  EGRNF

Very good diversification

The 3 months correlation between Hong and EGRNF is -0.4. Overlapping area represents the amount of risk that can be diversified away by holding Hong Kong Land and EGRNF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on EGRNF 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 Land are associated (or correlated) with EGRNF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of EGRNF has no effect on the direction of Hong Kong i.e., Hong Kong and EGRNF go up and down completely randomly.

Pair Corralation between Hong Kong and EGRNF

Assuming the 90 days horizon Hong Kong is expected to generate 50.03 times less return on investment than EGRNF. But when comparing it to its historical volatility, Hong Kong Land is 43.87 times less risky than EGRNF. It trades about 0.09 of its potential returns per unit of risk. EGRNF is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  4.00  in EGRNF on September 3, 2024 and sell it today you would lose (3.97) from holding EGRNF or give up 99.25% of portfolio value over 90 days.

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

Hong Kong Land  vs.  EGRNF

Hong Kong Land

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Kong Land are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking signals, Hong Kong showed solid returns over the last few months and may actually be approaching a breakup point.

EGRNF

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in EGRNF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, EGRNF reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hong Kong and EGRNF

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

The idea behind Hong Kong Land and EGRNF 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.

Check out your portfolio center.

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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.