Correlation Between Swire Pacific and CITIC

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

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

Diversification Opportunities for Swire Pacific and CITIC

0.64

Correlation Coefficient

Swire Pacific  CITIC

Poor diversification

The 3 months correlation between Swire and CITIC is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Swire Pacific Ltd and CITIC Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CITIC Limited 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 Ltd are associated (or correlated) with CITIC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CITIC Limited has no effect on the direction of Swire Pacific i.e., Swire Pacific and CITIC go up and down completely randomly.

Pair Corralation between Swire Pacific and CITIC

Assuming the 90 days horizon Swire Pacific Ltd is expected to generate 1.42 times more return on investment than CITIC. However, Swire Pacific is 1.42 times more volatile than CITIC Limited. It trades about 0.03 of its potential returns per unit of risk. CITIC Limited is currently generating about -0.15 per unit of risk. If you would invest  668.00  in Swire Pacific Ltd on December 6, 2024 and sell it today you would earn a total of  17.00  from holding Swire Pacific Ltd or generate 2.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	76.27%
Values	Daily Returns

Swire Pacific Ltd  vs.  CITIC Limited

Swire Pacific

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Pacific Ltd are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental drivers, Swire Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

CITIC Limited

Risk-Adjusted Performance

Very Weak

Over the last 90 days CITIC Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's fundamental indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Swire Pacific and CITIC

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

The idea behind Swire Pacific Ltd and CITIC Limited 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.