Correlation Between New World and Sun Hung

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

By analyzing existing cross correlation between New World Development and Sun Hung Kai, you can compare the effects of market volatilities on New World and Sun Hung 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 New World with a short position of Sun Hung. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and Sun Hung.

Diversification Opportunities for New World and Sun Hung

0.71

Correlation Coefficient

New World  Sun Hung

Poor diversification

The 3 months correlation between New and Sun is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding New World Development and Sun Hung Kai in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Hung Kai and New World 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 New World Development are associated (or correlated) with Sun Hung. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Hung Kai has no effect on the direction of New World i.e., New World and Sun Hung go up and down completely randomly.

Pair Corralation between New World and Sun Hung

Assuming the 90 days horizon New World Development is expected to generate 6.95 times more return on investment than Sun Hung. However, New World is 6.95 times more volatile than Sun Hung Kai. It trades about 0.0 of its potential returns per unit of risk. Sun Hung Kai is currently generating about 0.01 per unit of risk. If you would invest  39.00  in New World Development on December 27, 2024 and sell it today you would lose (8.00) from holding New World Development or give up 20.51% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

New World Development  vs.  Sun Hung Kai

New World Development

Risk-Adjusted Performance

Very Weak

Over the last 90 days New World Development has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, New World is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Sun Hung Kai

Risk-Adjusted Performance

Very Weak

Over the last 90 days Sun Hung Kai has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward-looking indicators, Sun Hung is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with New World and Sun Hung

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

The idea behind New World Development and Sun Hung Kai 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.