US-HK Stock Hedging Strategy｜How to Deploy Long-Short Trades Using Highly Correlated Stocks?
Hedging Among Tech Giants
📌 Semiconductors: NVIDIA (NVDA) vs. Intel (INTC)
In the AI chip space, NVIDIA is undoubtedly the industry leader, benefiting from the recent AI boom with significant stock gains. In contrast, Intel has lagged due to slower process upgrades and a delayed AI transition. However, both are major semiconductor players with inherent price correlation, making them ideal for long-short hedging strategies.
For example, going long NVDA and short INTC can potentially reduce market exposure. Even if the sector weakens, NVIDIA may outperform due to its competitive edge. In 2023, NVDA soared over 200%, while INTC gained only around 30%. Early hedging could have yielded considerable profits.
However, competition in this sector is fierce. Rivals like AMD and rapid technological advancements may shift the landscape. Continuous tracking of industry trends and company fundamentals is essential.
$NVIDIA(NVDA.US)
$Intel(INTC.US)
📌 EV Sector: Tesla (TSLA) vs. BYD (1211.HK)
Tesla focuses on the premium market and integrated energy solutions, with strong brand recognition. BYD leverages full-supply-chain control to reduce costs and expand rapidly. Though their business models differ, both are global EV leaders and suitable for constructing hedged portfolios.
Investors can adjust positions based on market sentiment:
Bullish on U.S. EV subsidies: Long TSLA, Short BYD
Bullish on China domestic demand: Long BYD, Short TSLA
From 2022 to 2023, TSLA experienced significant volatility, while BYD remained relatively stable—providing ample hedging opportunities.
Caution: Policy shifts, solid-state battery breakthroughs, and lithium price fluctuations can directly impact earnings expectations. Robust risk management is essential.
$Tesla(TSLA.US)
$BYD COMPANY(01211.HK)
Key Risks to Watch with Hedging Strategies
Despite the advantages of highly correlated hedging, risks remain:
Correlation Breakdown During Extreme Events
Example: March 2020 pandemic shock saw tech stocks plummet across the board, making hedging ineffective.
Short-Selling Restrictions in HK Market
Not all stocks are available for borrowing, and some require high interest rates for short positions.
Unexpected News Impact
Company-specific surprises can cause price decoupling, disrupting hedging setups.
Macro Factors Affect Both Sides
Example: The Fed's 2022 rate hikes triggered broad tech sell-offs, hurting both long and short positions.
Sudden Regulatory Changes
During market turmoil, HK authorities may suspend short-selling or tighten restrictions—risk control is essential.
Practical Considerations for Execution
Capital Efficiency
Long-short setups require simultaneous positions, increasing capital needs. Maintain sufficient margin to avoid forced liquidation.
Tax Implications
HK and U.S. tax rules differ, with potential double taxation for cross-border trades. Consult tax professionals as needed.
Tech Tools for Risk Monitoring
Use professional trading systems to track correlation shifts, set alerts, and facilitate timely stop-loss or position adjustments.
Highly correlated hedging is not about short-term speculation but building a resilient, diversified investment framework. When applied correctly, this strategy can enhance risk-adjusted returns across market cycles. Success depends on stock selection, disciplined risk management, and real-time information tracking.
Interested in these strategies? Feel free to share your views or discuss which combinations have worked best for you!
The copyright of this article belongs to the original author/organization.
The views expressed herein are solely those of the author and do not reflect the stance of the platform. The content is intended for investment reference purposes only and shall not be considered as investment advice. Please contact us if you have any questions or suggestions regarding the content services provided by the platform.
