Correlation Between Sun Hung and Longfor Properties

Can any of the company-specific risk be diversified away by investing in both Sun Hung and Longfor Properties 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 Longfor Properties 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 Longfor Properties Co, you can compare the effects of market volatilities on Sun Hung and Longfor Properties 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 Longfor Properties. Check out your portfolio center. Please also check ongoing floating volatility patterns of Sun Hung and Longfor Properties.

Diversification Opportunities for Sun Hung and Longfor Properties

0.76

Correlation Coefficient

Sun Hung  Longfor Properties

Poor diversification

The 3 months correlation between Sun and Longfor is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Sun Hung Kai and Longfor Properties Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Longfor Properties 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 Longfor Properties. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Longfor Properties has no effect on the direction of Sun Hung i.e., Sun Hung and Longfor Properties go up and down completely randomly.

Pair Corralation between Sun Hung and Longfor Properties

Assuming the 90 days horizon Sun Hung is expected to generate 5.09 times less return on investment than Longfor Properties. But when comparing it to its historical volatility, Sun Hung Kai is 3.07 times less risky than Longfor Properties. It trades about 0.01 of its potential returns per unit of risk. Longfor Properties Co is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,938  in Longfor Properties Co on September 12, 2024 and sell it today you would lose (334.00) from holding Longfor Properties Co or give up 17.23% of portfolio value over 90 days.

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

Sun Hung Kai  vs.  Longfor Properties Co

Sun Hung Kai

Risk-Adjusted Performance

4 of 100

Insignificant

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

Longfor Properties

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Longfor Properties Co are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Longfor Properties showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sun Hung and Longfor Properties

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

The idea behind Sun Hung Kai and Longfor Properties Co 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.