Correlation Between Henderson Land and Swire Properties

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

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

Diversification Opportunities for Henderson Land and Swire Properties

0.53

Correlation Coefficient

Henderson Land  Swire Properties

Very weak diversification

The 3 months correlation between Henderson and Swire is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding Henderson Land Development and Swire Properties Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Properties and Henderson Land 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 Henderson Land Development are associated (or correlated) with Swire Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Swire Properties has no effect on the direction of Henderson Land i.e., Henderson Land and Swire Properties go up and down completely randomly.

Pair Corralation between Henderson Land and Swire Properties

Assuming the 90 days horizon Henderson Land Development is expected to under-perform the Swire Properties. But the stock apears to be less risky and, when comparing its historical volatility, Henderson Land Development is 1.46 times less risky than Swire Properties. The stock trades about -0.08 of its potential returns per unit of risk. The Swire Properties Limited is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  184.00  in Swire Properties Limited on September 24, 2024 and sell it today you would earn a total of  4.00  from holding Swire Properties Limited or generate 2.17% return on investment over 90 days.

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

Henderson Land Development  vs.  Swire Properties Limited

Henderson Land Devel

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Henderson Land Development has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Henderson Land is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Swire Properties

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Properties Limited are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Swire Properties reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Henderson Land and Swire Properties

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

The idea behind Henderson Land Development and Swire Properties Limited 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.