Correlation Between MSCI and Hong Kong

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

By analyzing existing cross correlation between MSCI Inc and Hong Kong Exchanges, you can compare the effects of market volatilities on MSCI and Hong Kong 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 MSCI with a short position of Hong Kong. Check out your portfolio center. Please also check ongoing floating volatility patterns of MSCI and Hong Kong.

Diversification Opportunities for MSCI and Hong Kong

0.33

Correlation Coefficient

MSCI  Hong Kong

Weak diversification

The 3 months correlation between MSCI and Hong is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding MSCI Inc and Hong Kong Exchanges in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Kong Exchanges and MSCI 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 MSCI Inc are associated (or correlated) with Hong Kong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Kong Exchanges has no effect on the direction of MSCI i.e., MSCI and Hong Kong go up and down completely randomly.

Pair Corralation between MSCI and Hong Kong

Given the investment horizon of 90 days MSCI is expected to generate 3.52 times less return on investment than Hong Kong. But when comparing it to its historical volatility, MSCI Inc is 4.51 times less risky than Hong Kong. It trades about 0.1 of its potential returns per unit of risk. Hong Kong Exchanges is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,079  in Hong Kong Exchanges on September 19, 2024 and sell it today you would earn a total of  621.00  from holding Hong Kong Exchanges or generate 20.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

MSCI Inc  vs.  Hong Kong Exchanges

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 weak fundamental indicators, MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Hong Kong Exchanges

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Kong Exchanges are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Hong Kong reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with MSCI and Hong Kong

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

The idea behind MSCI Inc and Hong Kong Exchanges 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.