Correlation Between Sun Hung and Swire Pacific

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

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

Diversification Opportunities for Sun Hung and Swire Pacific

0.6

Correlation Coefficient

Sun Hung  Swire Pacific

Poor diversification

The 3 months correlation between Sun and Swire is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Sun Hung Kai and Swire Pacific in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Pacific and Sun Hung 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 Sun Hung Kai 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 Sun Hung i.e., Sun Hung and Swire Pacific go up and down completely randomly.

Pair Corralation between Sun Hung and Swire Pacific

Assuming the 90 days horizon Sun Hung Kai is expected to under-perform the Swire Pacific. But the pink sheet apears to be less risky and, when comparing its historical volatility, Sun Hung Kai is 1.06 times less risky than Swire Pacific. The pink sheet trades about -0.13 of its potential returns per unit of risk. The Swire Pacific is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  843.00  in Swire Pacific on September 2, 2024 and sell it today you would lose (20.00) from holding Swire Pacific or give up 2.37% of portfolio value over 90 days.

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

Sun Hung Kai  vs.  Swire Pacific

Sun Hung Kai

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Hung Kai are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking indicators, Sun Hung may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Swire Pacific

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Pacific are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Sun Hung and Swire Pacific

The main advantage of trading using opposite Sun Hung and Swire Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sun Hung 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 Sun Hung Kai 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.