Correlation Between Sun Hung and New World

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

Diversification Opportunities for Sun Hung and New World

0.82

Correlation Coefficient

Sun Hung  New World

Very poor diversification

The 3 months correlation between Sun and New is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Sun Hung Kai and New World Development in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on New World Development 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 New World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of New World Development has no effect on the direction of Sun Hung i.e., Sun Hung and New World go up and down completely randomly.

Pair Corralation between Sun Hung and New World

Assuming the 90 days horizon Sun Hung is expected to generate 1.31 times less return on investment than New World. But when comparing it to its historical volatility, Sun Hung Kai is 4.71 times less risky than New World. It trades about 0.09 of its potential returns per unit of risk. New World Development is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  45.00  in New World Development on September 3, 2024 and sell it today you would lose (3.00) from holding New World Development or give up 6.67% of portfolio value over 90 days.

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

Sun Hung Kai  vs.  New World Development

Sun Hung Kai

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Sun Hung Kai are ranked lower than 7 (%) 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.

New World Development

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in New World Development are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, New World showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sun Hung and New World

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

The idea behind Sun Hung Kai and New World Development 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.