Correlation Between Hang Seng and Algonquin Power

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

By analyzing existing cross correlation between Hang Seng Bank and Algonquin Power Utilities, you can compare the effects of market volatilities on Hang Seng and Algonquin Power 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 Hang Seng with a short position of Algonquin Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hang Seng and Algonquin Power.

Diversification Opportunities for Hang Seng and Algonquin Power

-0.74

Correlation Coefficient

Hang Seng  Algonquin Power

Pay attention - limited upside

The 3 months correlation between Hang and Algonquin is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Hang Seng Bank and Algonquin Power Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Algonquin Power Utilities and Hang Seng 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 Hang Seng Bank are associated (or correlated) with Algonquin Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Algonquin Power Utilities has no effect on the direction of Hang Seng i.e., Hang Seng and Algonquin Power go up and down completely randomly.

Pair Corralation between Hang Seng and Algonquin Power

Assuming the 90 days horizon Hang Seng Bank is expected to generate 1.4 times more return on investment than Algonquin Power. However, Hang Seng is 1.4 times more volatile than Algonquin Power Utilities. It trades about 0.1 of its potential returns per unit of risk. Algonquin Power Utilities is currently generating about -0.05 per unit of risk. If you would invest  536.00  in Hang Seng Bank on September 28, 2024 and sell it today you would earn a total of  614.00  from holding Hang Seng Bank or generate 114.55% return on investment over 90 days.

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

Hang Seng Bank  vs.  Algonquin Power Utilities

Hang Seng Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hang Seng Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Hang Seng reported solid returns over the last few months and may actually be approaching a breakup point.

Algonquin Power Utilities

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Algonquin Power Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Hang Seng and Algonquin Power

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

The idea behind Hang Seng Bank and Algonquin Power Utilities 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 Transaction History module to view history of all your transactions and understand their impact on performance.