Correlation Between Swire Pacific and Henderson Land

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

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

Diversification Opportunities for Swire Pacific and Henderson Land

0.7

Correlation Coefficient

Swire Pacific  Henderson Land

Poor diversification

The 3 months correlation between Swire and Henderson is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Swire Pacific and Henderson Land Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Henderson Land Devel and Swire Pacific 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 Swire Pacific are associated (or correlated) with Henderson Land. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Henderson Land Devel has no effect on the direction of Swire Pacific i.e., Swire Pacific and Henderson Land go up and down completely randomly.

Pair Corralation between Swire Pacific and Henderson Land

Assuming the 90 days horizon Swire Pacific is expected to generate 1.25 times more return on investment than Henderson Land. However, Swire Pacific is 1.25 times more volatile than Henderson Land Development. It trades about 0.01 of its potential returns per unit of risk. Henderson Land Development is currently generating about -0.03 per unit of risk. If you would invest  901.00  in Swire Pacific on December 21, 2024 and sell it today you would lose (4.00) from holding Swire Pacific or give up 0.44% of portfolio value over 90 days.

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

Swire Pacific  vs.  Henderson Land Development

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.

Henderson Land Devel

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Swire Pacific and Henderson Land

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

The idea behind Swire Pacific and Henderson Land Development 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.