Correlation Between Arca Continental and Swire Pacific

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

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

Diversification Opportunities for Arca Continental and Swire Pacific

-0.31

Correlation Coefficient

Arca Continental  Swire Pacific

Very good diversification

The 3 months correlation between Arca and Swire is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Arca Continental SAB and Swire Pacific Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Swire Pacific and Arca Continental 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 Arca Continental SAB 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 Arca Continental i.e., Arca Continental and Swire Pacific go up and down completely randomly.

Pair Corralation between Arca Continental and Swire Pacific

Assuming the 90 days horizon Arca Continental is expected to generate 11.31 times less return on investment than Swire Pacific. But when comparing it to its historical volatility, Arca Continental SAB is 4.45 times less risky than Swire Pacific. It trades about 0.02 of its potential returns per unit of risk. Swire Pacific Ltd is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  659.00  in Swire Pacific Ltd on September 14, 2024 and sell it today you would lose (7.00) from holding Swire Pacific Ltd or give up 1.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.62%
Values	Daily Returns

Arca Continental SAB  vs.  Swire Pacific Ltd

Arca Continental SAB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Arca Continental SAB has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Arca Continental is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Swire Pacific

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Swire Pacific Ltd are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental drivers, Swire Pacific may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Arca Continental and Swire Pacific

The main advantage of trading using opposite Arca Continental and Swire Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Arca Continental 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 Arca Continental SAB and Swire Pacific Ltd 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.