Correlation Between Swire Pacific and Hong Kong

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

By analyzing existing cross correlation between Swire Pacific and Hong Kong and, you can compare the effects of market volatilities on Swire Pacific and Hong Kong 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 Hong Kong. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swire Pacific and Hong Kong.

Diversification Opportunities for Swire Pacific and Hong Kong

0.25

Correlation Coefficient

Swire Pacific  Hong Kong

Modest diversification

The 3 months correlation between Swire and Hong is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Swire Pacific and Hong Kong and in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hong Kong 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 Hong Kong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hong Kong has no effect on the direction of Swire Pacific i.e., Swire Pacific and Hong Kong go up and down completely randomly.

Pair Corralation between Swire Pacific and Hong Kong

Assuming the 90 days horizon Swire Pacific is expected to under-perform the Hong Kong. But the pink sheet apears to be less risky and, when comparing its historical volatility, Swire Pacific is 2.3 times less risky than Hong Kong. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Hong Kong and is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  74.00  in Hong Kong and on December 28, 2024 and sell it today you would earn a total of  9.00  from holding Hong Kong and or generate 12.16% return on investment over 90 days.

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

Swire Pacific  vs.  Hong Kong and

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.

Hong Kong

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Hong Kong and are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Hong Kong showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Swire Pacific and Hong Kong

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

The idea behind Swire Pacific and Hong Kong and 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.

Check out your portfolio center.

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 Dashboard module to portfolio dashboard that provides centralized access to all your investments.