Correlation Between Sino Land and China Resources

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

By analyzing existing cross correlation between Sino Land Co and China Resources Land, you can compare the effects of market volatilities on Sino Land and China Resources 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 Sino Land with a short position of China Resources. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sino Land and China Resources.

Diversification Opportunities for Sino Land and China Resources

0.54

Correlation Coefficient

Sino Land  China Resources

Very weak diversification

The 3 months correlation between Sino and China is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Sino Land Co and China Resources Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Resources Land and Sino Land 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 Sino Land Co are associated (or correlated) with China Resources. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Resources Land has no effect on the direction of Sino Land i.e., Sino Land and China Resources go up and down completely randomly.

Pair Corralation between Sino Land and China Resources

Assuming the 90 days horizon Sino Land is expected to generate 1.49 times less return on investment than China Resources. But when comparing it to its historical volatility, Sino Land Co is 1.65 times less risky than China Resources. It trades about 0.02 of its potential returns per unit of risk. China Resources Land is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  4,415  in China Resources Land on September 13, 2024 and sell it today you would lose (1,075) from holding China Resources Land or give up 24.35% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	92.81%
Values	Daily Returns

Sino Land Co  vs.  China Resources Land

Sino Land

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sino Land Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Sino Land showed solid returns over the last few months and may actually be approaching a breakup point.

China Resources Land

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Resources Land are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak forward-looking indicators, China Resources showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sino Land and China Resources

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

The idea behind Sino Land Co and China Resources Land 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.