Correlation Between Swire Pacific and National Health

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

Diversification Opportunities for Swire Pacific and National Health

0.13

Correlation Coefficient

Swire Pacific  National Health

Average diversification

The 3 months correlation between Swire and National is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Swire Pacific Ltd and National Health Scan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Health Scan 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 National Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Health Scan has no effect on the direction of Swire Pacific i.e., Swire Pacific and National Health go up and down completely randomly.

Pair Corralation between Swire Pacific and National Health

Assuming the 90 days horizon Swire Pacific Ltd is expected to under-perform the National Health. But the pink sheet apears to be less risky and, when comparing its historical volatility, Swire Pacific Ltd is 25.52 times less risky than National Health. The pink sheet trades about -0.04 of its potential returns per unit of risk. The National Health Scan is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1.10  in National Health Scan on December 29, 2024 and sell it today you would lose (0.38) from holding National Health Scan or give up 34.55% of portfolio value over 90 days.

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

Swire Pacific Ltd  vs.  National Health Scan

Swire Pacific

Risk-Adjusted Performance

Very Weak

Over the last 90 days Swire Pacific Ltd has generated negative risk-adjusted returns adding no value to investors with long positions. 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.

National Health Scan

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in National Health Scan are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical and fundamental indicators, National Health reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Swire Pacific and National Health

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

The idea behind Swire Pacific Ltd and National Health Scan 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.