Correlation Between CITIC and Swire Pacific

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

By analyzing existing cross correlation between CITIC Limited and Swire Pacific Ltd, you can compare the effects of market volatilities on CITIC and Swire Pacific 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 CITIC with a short position of Swire Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of CITIC and Swire Pacific.

Diversification Opportunities for CITIC and Swire Pacific

0.68

Correlation Coefficient

CITIC  Swire Pacific

Poor diversification

The 3 months correlation between CITIC and Swire is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding CITIC Limited and Swire Pacific Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Pacific and CITIC 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 CITIC Limited are associated (or correlated) with Swire Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swire Pacific has no effect on the direction of CITIC i.e., CITIC and Swire Pacific go up and down completely randomly.

Pair Corralation between CITIC and Swire Pacific

Assuming the 90 days horizon CITIC Limited is expected to under-perform the Swire Pacific. In addition to that, CITIC is 1.21 times more volatile than Swire Pacific Ltd. It trades about -0.22 of its total potential returns per unit of risk. Swire Pacific Ltd is currently generating about -0.04 per unit of volatility. If you would invest  695.00  in Swire Pacific Ltd on December 1, 2024 and sell it today you would lose (11.00) from holding Swire Pacific Ltd or give up 1.58% of portfolio value over 90 days.

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

CITIC Limited  vs.  Swire Pacific Ltd

CITIC Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days CITIC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Swire Pacific

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Pacific Ltd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental drivers, Swire Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with CITIC and Swire Pacific

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

The idea behind CITIC Limited and Swire Pacific Ltd 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.