Correlation Between Oversea-Chinese BankingLimited and Hang Seng
Can any of the company-specific risk be diversified away by investing in both Oversea-Chinese BankingLimited and Hang Seng 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 Oversea-Chinese BankingLimited and Hang Seng into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Oversea Chinese Banking and Hang Seng Bank, you can compare the effects of market volatilities on Oversea-Chinese BankingLimited and Hang Seng 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 Oversea-Chinese BankingLimited with a short position of Hang Seng. Check out your portfolio center. Please also check ongoing floating volatility patterns of Oversea-Chinese BankingLimited and Hang Seng.
Diversification Opportunities for Oversea-Chinese BankingLimited and Hang Seng
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Oversea-Chinese and Hang is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Oversea Chinese Banking and Hang Seng Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hang Seng Bank and Oversea-Chinese BankingLimited 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 Oversea Chinese Banking are associated (or correlated) with Hang Seng. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hang Seng Bank has no effect on the direction of Oversea-Chinese BankingLimited i.e., Oversea-Chinese BankingLimited and Hang Seng go up and down completely randomly.
Pair Corralation between Oversea-Chinese BankingLimited and Hang Seng
Assuming the 90 days trading horizon Oversea-Chinese BankingLimited is expected to generate 4.66 times less return on investment than Hang Seng. But when comparing it to its historical volatility, Oversea Chinese Banking is 2.81 times less risky than Hang Seng. It trades about 0.05 of its potential returns per unit of risk. Hang Seng Bank is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest 775.00 in Hang Seng Bank on January 24, 2024 and sell it today you would earn a total of 365.00 from holding Hang Seng Bank or generate 47.1% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Oversea Chinese Banking vs. Hang Seng Bank
Performance |
| Timeline |
| Oversea-Chinese BankingLimited |
| Hang Seng Bank |
Oversea-Chinese BankingLimited and Hang Seng Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Oversea-Chinese BankingLimited and Hang Seng
The main advantage of trading using opposite Oversea-Chinese BankingLimited and Hang Seng positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Oversea-Chinese BankingLimited position performs unexpectedly, Hang Seng 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 Hang Seng will offset losses from the drop in Hang Seng's long position.The idea behind Oversea Chinese Banking and Hang Seng Bank 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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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
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