Correlation Between New World and PCCW

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

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

Diversification Opportunities for New World and PCCW

-0.21

Correlation Coefficient

New World  PCCW

Very good diversification

The 3 months correlation between New and PCCW is -0.21. Overlapping area represents the amount of risk that can be diversified away by holding New World Development and PCCW Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PCCW Limited and New World 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 New World Development are associated (or correlated) with PCCW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PCCW Limited has no effect on the direction of New World i.e., New World and PCCW go up and down completely randomly.

Pair Corralation between New World and PCCW

Assuming the 90 days horizon New World Development is expected to generate 1.75 times more return on investment than PCCW. However, New World is 1.75 times more volatile than PCCW Limited. It trades about 0.02 of its potential returns per unit of risk. PCCW Limited is currently generating about 0.02 per unit of risk. If you would invest  44.00  in New World Development on September 13, 2024 and sell it today you would lose (3.00) from holding New World Development or give up 6.82% of portfolio value over 90 days.

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

New World Development  vs.  PCCW Limited

New World Development

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New World Development are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, New World may actually be approaching a critical reversion point that can send shares even higher in January 2025.

PCCW Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in PCCW Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, PCCW is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with New World and PCCW

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

The idea behind New World Development and PCCW 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.

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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.