Correlation Between New World and Swire Pacific

Can any of the company-specific risk be diversified away by investing in both New World 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 New World and Swire Pacific 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 Swire Pacific, you can compare the effects of market volatilities on New World 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 New World with a short position of Swire Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of New World and Swire Pacific.

Diversification Opportunities for New World and Swire Pacific

0.41

Correlation Coefficient

New World  Swire Pacific

Very weak diversification

The 3 months correlation between New and Swire is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding New World Development and Swire Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Pacific 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 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 New World i.e., New World and Swire Pacific go up and down completely randomly.

Pair Corralation between New World and Swire Pacific

Assuming the 90 days horizon New World Development is expected to generate 4.48 times more return on investment than Swire Pacific. However, New World is 4.48 times more volatile than Swire Pacific. It trades about 0.03 of its potential returns per unit of risk. Swire Pacific 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 (3.00) from holding New World Development or give up 7.69% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

New World Development  vs.  Swire Pacific

New World Development

Risk-Adjusted Performance

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New World Development are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, New World showed solid returns over the last few months and may actually be approaching a breakup point.

Swire Pacific

Risk-Adjusted Performance

Very Weak

Over the last 90 days Swire Pacific has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, 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 New World and Swire Pacific

The main advantage of trading using opposite New World and Swire Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if New World 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 New World Development and Swire Pacific 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.