Correlation Between MDU Resources and Swire Pacific

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

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

Diversification Opportunities for MDU Resources and Swire Pacific

0.22

Correlation Coefficient

MDU Resources  Swire Pacific

Modest diversification

The 3 months correlation between MDU and Swire is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding MDU Resources Group and Swire Pacific Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Pacific and MDU Resources 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 MDU Resources Group 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 MDU Resources i.e., MDU Resources and Swire Pacific go up and down completely randomly.

Pair Corralation between MDU Resources and Swire Pacific

Considering the 90-day investment horizon MDU Resources Group is expected to generate 0.6 times more return on investment than Swire Pacific. However, MDU Resources Group is 1.67 times less risky than Swire Pacific. It trades about 0.28 of its potential returns per unit of risk. Swire Pacific Ltd is currently generating about 0.02 per unit of risk. If you would invest  1,389  in MDU Resources Group on September 3, 2024 and sell it today you would earn a total of  624.00  from holding MDU Resources Group or generate 44.92% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

MDU Resources Group  vs.  Swire Pacific Ltd

MDU Resources Group

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in MDU Resources Group are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal fundamental indicators, MDU Resources unveiled solid returns over the last few months and may actually be approaching a breakup point.

Swire Pacific

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Pacific Ltd are ranked lower than 1 (%) 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 MDU Resources and Swire Pacific

The main advantage of trading using opposite MDU Resources and Swire Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MDU Resources 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 MDU Resources Group 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.