Correlation Between Sun Hung and Country Garden

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

By analyzing existing cross correlation between Sun Hung Kai and Country Garden Holdings, you can compare the effects of market volatilities on Sun Hung and Country Garden 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 Sun Hung with a short position of Country Garden. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sun Hung and Country Garden.

Diversification Opportunities for Sun Hung and Country Garden

-0.36

Correlation Coefficient

Sun Hung  Country Garden

Very good diversification

The 3 months correlation between Sun and Country is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Sun Hung Kai and Country Garden Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Country Garden Holdings and Sun Hung 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 Sun Hung Kai are associated (or correlated) with Country Garden. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Country Garden Holdings has no effect on the direction of Sun Hung i.e., Sun Hung and Country Garden go up and down completely randomly.

Pair Corralation between Sun Hung and Country Garden

Assuming the 90 days horizon Sun Hung is expected to generate 60.79 times less return on investment than Country Garden. But when comparing it to its historical volatility, Sun Hung Kai is 26.34 times less risky than Country Garden. It trades about 0.05 of its potential returns per unit of risk. Country Garden Holdings is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  20.00  in Country Garden Holdings on September 13, 2024 and sell it today you would lose (2.00) from holding Country Garden Holdings or give up 10.0% of portfolio value over 90 days.

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

Sun Hung Kai  vs.  Country Garden Holdings

Sun Hung Kai

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Hung Kai are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong forward-looking indicators, Sun Hung is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Country Garden Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Country Garden Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Country Garden reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sun Hung and Country Garden

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

The idea behind Sun Hung Kai and Country Garden Holdings 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.