Correlation Between Sun Hung and Holiday Island

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

By analyzing existing cross correlation between Sun Hung Kai and Holiday Island Holdings, you can compare the effects of market volatilities on Sun Hung and Holiday Island 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 Sun Hung with a short position of Holiday Island. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sun Hung and Holiday Island.

Diversification Opportunities for Sun Hung and Holiday Island

-0.35

Correlation Coefficient

Sun Hung  Holiday Island

Very good diversification

The 3 months correlation between Sun and Holiday is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Sun Hung Kai and Holiday Island Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Holiday Island Holdings and Sun Hung 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 Sun Hung Kai are associated (or correlated) with Holiday Island. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Holiday Island Holdings has no effect on the direction of Sun Hung i.e., Sun Hung and Holiday Island go up and down completely randomly.

Pair Corralation between Sun Hung and Holiday Island

Assuming the 90 days horizon Sun Hung is expected to generate 6.52 times less return on investment than Holiday Island. But when comparing it to its historical volatility, Sun Hung Kai is 8.75 times less risky than Holiday Island. It trades about 0.1 of its potential returns per unit of risk. Holiday Island Holdings is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  2.70  in Holiday Island Holdings on September 4, 2024 and sell it today you would earn a total of  0.20  from holding Holiday Island Holdings or generate 7.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Sun Hung Kai  vs.  Holiday Island Holdings

Sun Hung Kai

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Hung Kai are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking indicators, Sun Hung may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Holiday Island Holdings

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Holiday Island Holdings are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical indicators, Holiday Island demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sun Hung and Holiday Island

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

The idea behind Sun Hung Kai and Holiday Island Holdings 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.